• Low govt. domestic borrowing and primary surplus to limit significant rate hikes over 2 years
• CBSL’s commitment to moderate inflation and managing import demand supports stable rates

Sri Lanka’s interest rates are unlikely to move up substantially over the next two years as government borrowings from the domestic market are set to remain low with primary surplus, LYNEAR Wealth Management Equities Head Asanka Herath said.

Speaking at an interview conducted by CA Sri Lanka, he said that the government is going to require less funding and borrowing from the domestic banking system and other investors to fund day-to-day operations with the possibility of primary surplus in 2025 and 2026 and treasury having positive cash balance.

Meanwhile, Herath also said that the Central Bank of Sri Lanka (CBSL) is committed to maintain inflation at a moderate level and very much likely to step in the moment the Central Bank feels private credit growth is going beyond a certain level.

The easing of deflationary conditions continued in May, in line with the Central Bank’s near-term projections as Colombo Consumer Price Index (CCPI) reflected a slower pace of headline deflation at 0.7% in May compared to the deflation of 2% recorded in April.

Herath added that the Central Bank has a very close eye on the external situation, and the moment it feels the import demand is likely to be excessive, the Central bank will take measures to cool the economy.

“Both of those mean interest rates are unlikely to move up substantially over the next two years,” Herath said.

However, he said that interest rates will move up by 100 bps by the end of the year, which will take the one year deposit rate to around 10% and with the level of taxation investors will be talking home 6.5-7%.