First Capital Research expects the Central Bank of Sri Lanka to leave its policy rate unchanged at next week’s review, assigning a 60% probability to a hold and a 40% chance of a hike of up to 50 basis points, Hiru News reported.
The research house published the pre-policy note on Thursday. It expects the Overnight Policy Rate (OPR) to stay at 8.75%.
The Central Bank’s published announcement calendar sets the decision — Monetary Policy Review No. 5 of 2026 — for Wednesday, 30 September, following a Monetary Policy Board meeting the previous day.
The case for holding
First Capital’s hold argument rests on two points. The first is that the Central Bank’s 100 basis point increase in May, which took the OPR from 7.75% to its current level, is still working through the economy. Rate changes affect lending and demand with a lag, and the firm argues that tightening has not yet fully landed.
The second is a change to reserve requirements that Hiru reports takes effect next Tuesday — the day before the rate decision. Since April 2026 the Central Bank has run banks’ reserve maintenance on a 14-day cycle that begins on a Wednesday and ends on a Tuesday, so the change falls at a cycle boundary. A tightening delivered through reserve rules reduces the need for a simultaneous move in the policy rate.
What could force a hike
First Capital flags several pressures pointing the other way.
Headline inflation reached 8% year-on-year in August, well above the Central Bank’s 5% target. That figure matches the Colombo index reading of 8.0%; the national index ran slightly higher at 8.1%.
The trade deficit widened to more than US$1 billion in July alone. The firm also cites rising global oil prices and El Niño-driven food price risks — themes consistent with its earlier warning that weather shocks would keep food inflation elevated into 2027.
First Capital has separately forecast growth slowing to 3–4% in 2026 and 2027 on the same May tightening.
