Expected monetary policy stance
First Capital Research expects the Monetary Board to hold rates, as a rate cut would aggravate the foreign outflows increasing the pressure on the rupee while a hike would hinder the growth. However, we recognise a 35% probability of a 25bps rate hike considering the USD:LKR depreciation, lower foreign reserve position and higher foreign debt repayments in January – April 2019. We believe the political situation has hampered the ability to raise foreign debt over the next 6 months, thus affecting reserves.
We expect the CBSL to keep Statutory Reserve Ratio (SRR) unchanged at 7.50%.
First Capital Research is of the view that a continuation of policy rates is appropriate. However, we recognise an increased probability of 35% for a rate hike, amidst increased risk profile owing to prevailing political uncertainty and continued foreign outflows in spite of considerably low GDP growth and sluggish credit growth.
First Capital is an investment bank offering independent advice and transaction execution relating to capital raising and other strategic needs including mergers and acquisitions for investment in Sri Lanka. The Company’s industry leading transactions are reflective of the ingenuity in enabling the most opportune financing processes for our clients. First Capital’s services for investment in Sri Lanka include a total service for public offers of corporate debt, acting in the capacity of managers/ financial advisors and placement agents, in addition to due diligence, pre-offer preparation, offer management, distribution strategy and after-market advisory services, initial public offerings, secondary offerings such as rights issues, corporate actions including mandatory and voluntary offers, private placements and at-market placements of listed securities.