Markets brace for macro setback: First Capital

Sri Lanka’s foreign reserves recorded at USD 2.3 billion in February-22 and due to lack of expected foreign inflows, foreign reserves are expected to significantly deteriorate well ahead of the previous timelines, First Capital Research says.

Moreover, approximately USD 7 billion outstanding loan payments due for next 12 months further kindles the situation. Depleting foreign reserves, rising foreign currency debt repayment requirements and restricted market funding sources are projected to put more pressure on yields in 2022. As mentioned in the strategy report, in January 2022, we expected three rate hikes for 2022 targeting a total of 150bps,” First Capital said.

“However, under the worsening economic conditions, CBSL had to tighten 150 bps in two policy review meetings (In January- 22, 50 bps and in March – 22, 100 bps) while March -22 hike was a couple of months ahead of our expectations to balance the overall economy.”

“In light of the weaker economic conditions, we believe CBSL to maintain the momentum on tightening policy rates resulting in yields to further surge at an accelerated pace and expect it to move further over up coming months, days,” First Capital said in its monthly economic report.