Sri Lanka’s central bank to keep rates on hold until 2012

The Central Bank of Sri Lanka (CBSL) kept interest rates on hold today, as expected. Although headline inflation crept up slightly in July, the central bank remains confident that inflation will start to fall again soon, while it remains wary of the outlook for the world economy. As a result, we expect the repo and reverse repo rates to be left unchanged at 7.0% and 8.5% respectively until 2012. We then expect two 25bp rate hikes in the second half of next year.