The Central Bank of Sri Lanka (CBSL) unexpectedly cut its two policy rates at today’s meeting. Inflation accelerated at the end of last year while the economic upswing is set to stay strong. Nevertheless, the CBSL anticipates that food price pressures will ease in coming months while high investment will reduce capacity constraints. We are not so sure. Accordingly, we still think that rates will eventually move up in 2011; our best guess is from mid-year.
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