CBSL Policy Rates Expected to Hold Firm: FCR Outlook 📈

First Capital Research (FCR) assigns a 60% probability for the Central Bank to maintain policy rates in the upcoming review, versus a 40% chance of a rate cut (mostly a 25 bps reduction). • The main argument against easing is strong private-sector credit growth, which rose 23.6% YoY in September, alongside a Rs. 236.3 Bn jump that month alone. • External pressures also limit policy space: Official reserves slipped to US$ 6.21 Bn in October (~3 months import cover), and the rupee depreciated 5.4% YTD. • Sri Lanka recorded a Current Account deficit in September, reversing eight months of surpluses, adding to stability concerns. • Case for a cut rests on moderating economic momentum (GDP expected to slow despite 4.8% H1 2025 growth) and low headline inflation (2.1% in October). • High borrowing costs for SMEs (Average Weighted SME Rate 10.5%) are also noted. However, CBSL is expected to prioritize macro-financial stability. • FCR sees an 80% chance that the Statutory Reserve Ratio (SRR) will remain unchanged.