First Capital Research believes that there is a significant probability (90%) to hold policy rates due to the considerable improvement in high-frequency indicators with the fiscal and monetary measures implemented so far. However, there is a 10% probability for a 25bps rate hike to balance external pressure.
“As per our view, CBSL either can choose to hold policy rates steady or hike by 25bps while, a rate cut is off the table due to the high debt repayment and the high domestic borrowing requirement,” First Capital said in a research note.
“Towards the 2H 2021E, we expect a continued increase in probability for a rate hike in order to prevent overheating of the economy amidst the given fiscal and monetary stimulus. However, the probability for maintaining rates continues to be the majority probability for the rest of the year.”