The Central Bank of Sri Lanka (CBSL) kept its policy rates on hold at today’s meeting, as expected. Inflation has ticked up in recent months but is unlikely to become a threat any time soon. For this reason, we continue to expect policy rates to remain on hold for the rest of this year. That said, the domestic recovery is likely to stay strong and demand-side pressures will probably intensify next year. Consequently, we expect rates to move up from the middle of 2011.