First Capital bets Central Bank to hold rates this week

The analysts at First Capital Research expect the Central Bank to stay pat at the coming policy meeting this week to allow more time for the previous cuts to do their job as they have been so far this year.
It stated that it believes there is a 70 percent probability for policy rates to be maintained at their current levels, allowing further strengthening of key economic indicators. 
The fourth Monetary Policy for the year is set to be announced on Wednesday, July 24. At the last one in May, the Central Bank left the policy rates unchanged to give more time for the lower policy rates to do its job and it is.
The analysts, investors and economists have been wagering ahead of every policy meeting on the direction the Central Bank might take in terms of rates, depending on the behaviour in multiple variables.

They parse through recent inflation reports, behaviour in government securities yields, market lending rates and other real economic indicators such as the Purchasing Managers’ Indices (PMIs) to foretell as to what the rate setting committee could do at the meeting.
The economy has shown continuous signs of considerable growth and strength in the recent past, picking up from the positive pivot taken in the third quarter of last year.
The inflation has been mild at 1.7 percent in June, much less than the 5 percent mid-term target, according to the widely used Colombo Consumer Price Index while the government securities yields have fallen notably.

The prime rate of the banks, though stepped up 27 basis points last week to 9.12 percent, has been much conducive to support a lending drive to support reinvigoration in the economy.
The economic activities in both manufacturing and services sectors have been humming vigorously with the sector PMIs for June coming in at stronger 56.6 index points and 63.5, indicating robust expansion.
Construction sector activities have also been positive with the May PMI indicating an expansion with an index value of 54.5.

An activity is separated between an expansion and a contraction at an index value of 50.0 in PMI.
Meanwhile, growth in private sector credit, a long cause of concern for the Central Bank about its speed and the size, appeared to be gaining momentum with commercial banks selling out a net Rs.60.7 billion in May.
With the current inflation remaining at much benign levels and the yields and rates at desired range, the only reason for the Central Bank to cut rates this week could be to give a bit more nudge to the banks to give more loans to further accelerate the economic growth.