I think this is a very good move by the central bank as it’s anticipating the continued risk to inflation from higher oil prices and subsidies.
If they are going to run a higher deficit, then they will have to resort to higher borrowings, pushing up interest rates and fueling inflation. Whenever there’s inflation, spending on manufactured goods comes down.
The escalation of violence could be sufficient to slow down the economy’s momentum. If there’s full-scale war, it will increase the country’s risk profile, further fuel inflation, and hit the currency and aid flows.
The government may find it difficult to bring in investment in the current scenario, so the growth impetus may need to come instead from keeping rates steady.
The talks are very important for the market because the economic development of the country depends on the outcome. If the country is dragged into a war it’s going to be a real problem for us.
New projects could be put on hold, especially now with the peace process under pressure.
Most investors are cautious and still have some concerns that there could be return to hostilities.