First Capital Research believes that the Central Bank may consider maintaining the same policy stance in this policy review but given the considerable improvement in high-frequency indicators to prevent an overheating of the economy, there is a considerably high probability that CBSL may hike its policy rates.
"We believe that there is a significant probability 70% to hold rates due to the considerable improvement in high frequency indicators with the fiscal and monetary measures implemented so far. However, there is a 30% probability for 25 bps/ 50 bps rate hike to balance external pressure," First Capital said in a research note.
"As per our view, CBSL either can choose to hold policy rates steady or hike by 25 bps or 50 bps while, a rate cut is off the table due to the high debt repayment and the high domestic borrowing requirement.
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The Monetary Policy Review: No 07 of 2021 will be announced on 14 October 2021 at 07.30 am.