By Uditha Jayasinghe
COLOMBO (Reuters) - Sri Lanka's central bank is expected to resume interest rate cuts on Thursday as it attempts to bolster a recovery from its worst economic crisis in decades, capitalising on low inflation to complete the first review of a $2.9 billion IMF bailout package.
The median estimate in a Reuters poll of 17 economists and analysts is for a 100-basis-point (bps) cut in both the Standing Deposit Facility Rate and the Standing Lending Facility rate, taking them to 10% and 11%, respectively.
"We are sort of pushing towards a rate cut. Any more delays might be too late since we only have one more policy rate decision this year," said Dimantha Mathew, head of research at First Capital.
"Definitely over the next six months we expect rates to be cut by 200 bps points: This time 100 bps with the next 100 bps coming in the next quarter."
The Central Bank of Sri Lanka (CBSL) has already reduced rates by 450 bps in two moves over June and July after raising them by a record 1,050 bps from March 2022 to counter the island's worst financial crisis in over seven decades.
Rates were kept unchanged in a surprise move in August, as CBSL preferred to wait and let the impact of its recent rate filter through the economy.
The economy is expected to shrink 2% this year according to the CBSL's projections, after contracting 7.8% in 2022.
The World Bank raised its economic forecasts on Tuesday but they remain far more bearish, calling for a 3.8% contraction in 2023.
But the global lender expects gross domestic product (GDP) will grow 1.7% next year, up from an earlier forecast of 1%.
Since finalising a four-year programme with the International Monetary Fund (IMF) in March Sri Lanka has stabilised its economy, reducing inflation from 69% to 1.3% in a year, boosting reserves and strengthening its currency by 12%.
But the IMF did not reach a staff-level agreement with Sri Lanka in its first review last month, due to a potential shortfall in government revenue generation which could delay the release of the second tranche of funds to the island nation.
The policy decision will be at 7:30 a.m. (0200 GMT) on Thursday.
For individual contributions, please see table below:
Organisation SDFR SLFR
Acuity 10.50% 11.50%
Advocata Institute 11% 12%
CAL Group 10% 11%
HSBC 11% 12%
First Capital 10% 11%
Asha Securites 11% 12%
Capital Economics 10.50% 11.50%
Citigroup (NYSE:C) 10.50% -
University of Colombo 10% 11%
S C Securities 10% 11%
Frontier Research 10% 11%
NDB Securities 10% 11%
Asia Securities 9% 10%
JB Securities 10% 11%
Softlogic Stockbrokers 10% 11%
Lanka Securities 11% 12%
Almas Group 11% 12%
Median 10% 11%