• Bloomberg Economics predicts a 25bps policy rate cut to counter slowing growth if the reciprocal tariff persists beyond 1 August
• The Central Bank’s current pause allows assessment of trade talks, balancing growth stimulus with import demand and reserve stability

The Central Bank of Sri Lanka (CBSL) will likely ease the policy rate by another 25bps in September if the US reciprocal tariff stays at the current 30% after the 1 August deadline, Bloomberg Economics said.

In line with the Central Bank decision to hold policy rate at the current rate on Wednesday (23), Bloomberg Economics said that given the likely growth-inflation mix ahead, the Central Bank does not need to ease any further as additional easing could lead to an excessive demand for imports.

It said that a spurt in imports, along with the resumption of dollar-debt servicing as the government has completed the restructuring process, would drain foreign exchange reserves and hurt the rupee.

However, the report said that the picture could change, depending on US trade policy. ”If the levy stays at 30%, we see the Central Bank easing rates further by 25 basis points in September,” it added.

The Central Bank’s pause in its rate-cutting cycle on Wednesday serves two purposes such as to avoid an additional dose of stimulus to the economy, which does not need it at this point and to give the Central Bank time to gauge ongoing trade talks with the US and calibrate any additional easing to offset growth risks from higher tariffs.

“We see inflation returning this quarter and picking up ahead,” Bloomberg Economics said, adding that it could exceed the Central Bank’s inflation target of 5% in the first quarter of 2026 before converging with it in early 2027.

“Going by our inflation projections, we estimate that the 12-month forward-looking real rate currently stands at 3.2%,” it said.

Further, it said that credit to the private sector is rising due to lower lending rates, tourism is rebounding, and investors’ confidence has improved as the government has managed to stick to fiscal targets set by the International Monetary Fund.