• ‘Bloomberg’ says current rates might be maintained throughout 2024
• Cites two reasons, including inflation remaining above CBSL’s target range 

The Central Bank of Sri Lanka (CBSL) is expected to maintain its current policy rates throughout 2024, as inflation is projected to stay above CBSL’s desired range during the remainder of the year, Bloomberg Intelligence said.

The independent research arm of Bloomberg said that it expects the CBSL to extend its unchanged rates from January throughout 2024 for two main reasons.

It said that inflation will likely remain above the CBSL’s target of 5% through 2024, “We see CPI gains picking up to 8.4% year on year in the third quarter of 2024 from 3% in Q4 2023 largely due to a lower base of comparison caused by sharp disinflation last year.” it added.

However, according to Bloomberg Intelligence, Sri Lanka’s inflation is set to dip below the CBSL 5% target in March on power-tariff cuts and a high year-earlier base after exceeding it in the previous two months. 

However, the slowdown will prove short-lived. “We see inflation accelerating again from April to a peak in 2024 - largely due to a lower base of comparison caused by sharp disinflation last year,” it said, adding that inflation is set to average around 7% in 2024 down from 20.5% in 2023. 

Secondly, the differential between the US fed funds rate and the domestic policy rate is at a record low, compressed by 650 basis points of cuts by the CBSL since June 2023. 

“Further cuts could hurt the rupee and fuel inflationary pressures.” Bloomberg Intelligence said adding that they see CBSL keeping the standing lending and deposit rates at 10% and 9% respectively through 2024 and cutting both rates by 200 bps in 2025.

Based on the new Central Bank Act implemented from 2024 onwards, the CBSL expects to reduce the number of monetary policy reviews from 8 to 6 and adopt a single policy rate mechanism instead of double policy rates.