The median forecast in a Reuters poll of 15 economists and analysts is for the Standing Deposit Facility Rate (SDFR) to remain at 10% and the Standing Lending Facility Rate (SLFR) at 11%.

However, room exists for a rate cut of 50-100 basis points, according to six of the polled analysts who cited moderating inflation and declining government borrowing costs as incentives for the Central Bank of Sri Lanka (CBSL) to do so.

The CBSL increased rates a total of 10.5 percentage points until March to contain inflation and rebuild reserves to shore up its currency, after the economy tanked last year in the country's worst financial crisis in more than seven decades.

Since June, however, the CBSL has reduced rates by a total 550 basis points, including a 100 basis point cut in October, as the economy stabilised following an IMF rescue package in March.

"This rate decision is tricky. Typically the CBSL waits for policy decisions to filter through markets," said Raynal Wickremeratne, co-head of research at Softlogic Stockbrokers.

"We feel they will also wait for more direction from the IMF and progress on debt restructuring and reduce rates by about 100 basis points in early 2024."

Sri Lanka expects the IMF's executive board to approve the first review of the bailout by Dec.6 after receiving more clarity on its debt restructuring talks with key bilateral creditors. The approval would unlock $330 million in funding and signal progress for the four-year programme.

The CBSL has forecast Sri Lanka's economy will shrink 2% this year after a 7.8% contraction in 2022. The World Bank, however, predicts a 3.8% contraction in 2023.

"Growth in the third quarter will be positive but it will have to be about 3% in the third and fourth quarters to reach the CBSL target, which is unlikely," said Udeeshan Jonas, chief strategist at equity research firm CAL Group.

The policy decision will be at 7:30 a.m. (0200 GMT) on Friday.

For individual contributions, please see table below:

Organisation SDFR SLFR

Acuity 9.50% 10.50%

Advocata Institute 10% 11%

CAL Group 10% 11%

HSBC 10% 11%

First Capital 10% 11%

Asha Securites 10% 11%

Capital Economics 9.50% 10.50%

Standard Chartered - 10%

University of Colombo 9% 10%

S C Securities 10% 11%

Frontier Research 9% 10%

Asia Securities 9% 10%

JB Securities 10% 11%

Softlogic Stockbrokers 10% 11%

Almas Group 10% 11%

Median 10% 11%

(Reporting by Uditha Jayasinghe; Editing by Shri Navaratnam)

By Uditha Jayasinghe