The Central Bank of Sri Lanka (CBSL) is expected to keep rates on hold in May to allow the effects of April’s surprise 50bps cut to flow through to the economy. The Sri Lankan rupee (LKR) has depreciated marginally despite the CBSL’s ‘moral suasion’ efforts, and FII outflows have approached USD 52mn (USD 48mn in debt and USD 4mn in equities) since 15 April 2015. An easy monetary environment during H1-2015 is expected and forecast another rate cut of 50bps in June to spur growth. Inflation stayed benign in April at 0.1%, and expect average 2015 inflation to remain below 2%, raising the potential for further rate cuts.
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