Reuters – Sri Lanka’s central bank is likely to maintain interest rates on Thursday in an effort to get a grip on inflation which has remained stubbornly high despite a sharp contraction in the crisis-hit economy.
Nine out of 14 economists and analysts polled by Reuters said they expect rates to remain unchanged as the Central Bank of Sri Lanka (CBSL) waits for the effects of its earlier hikes to filter through to the economy and for inflation to stabilise as the economy cools.
“The pace of inflation appears to be slowing but it is also largely cost push inflation caused by depreciation and global commodity prices, which a rate hike would have limited impact on,” said Dimantha Mathew, head of research for Colombo-based investment firm First Capital.
The CBSL has raised rates by a record 950 basis points this year to battle high inflation which is adding to the country’s economic woes.
However, inflation has remained high, hitting a record peak of 68.9% in September with food inflation climbing to 93.7%.
Sri Lanka’s economy shrank 8.4% in the quarter through June from a year ago in one of the steepest declines seen in a three-month period, amid fertilizer and fuel shortages. The central bank predicts a 8.7% contraction in the economy for 2022.