12 March 2012

Sri Lanka's Central Bank Lowers 2012 Growth Forecast to No Lower than 7pct

10th March 2012, www.ft.lk

The Central Bank will soon lower its 2012 growth forecast of eight per cent to a figure no lower than seven per cent, owing to tighter monetary policy measures and the depreciation of the rupee, the Bank’s overnor told Reuters on Friday.

The bank had originally forecast this year’s growth at eight per cent, slowing from an estimated 8.3 per cent expansion in 2011.

The International Monetary Fund (IMF), which has given a $ 2.6 billion loan program to Sri Lanka, on Monday said the economic growth would be less than 7.5 per cent.

“We are getting ready to lower our growth forecast, around next week’s monetary policy announcement.It won’t be below seven per cent,” Central Bank Governor Ajith Nivard Cabraal told Reuters.

The bank meets on interest rates next Wednesday, when it should announce the changed forecast formally. Two other Central Bank officials confirmed the revision is under way.

“We will be looking at all the conditions. There are some areas going to be better and some areas not so good. So we are taking a calculated call,” Cabraal said. A record trade gap and a growing current account deficit forced the Central Bank to raise its policy rates for the first time since 2007.

The Central Bank last month halted its defence of the rupee at a specific price against the dollar, having spent more than $ 2.7 billion of its foreign exchange reserves last year to stave off depreciation.That removed a point of friction with the IMF and relieved pressure on its fast-dwindling reserves. Market interest rates have risen by 115-143 basis points since the bank raised its main policy rates by 50 basis points to 7.5 and 9.0 per cent respectively on 3 February. The rupee has also depreciated more than 5.7 per cent since the Central Bank stopped defending it on 9 February. The country is expected to have recorded a balance-of-payments deficit in 2011, although the official figures have not been released yet.

Related Info :

Sri Lanka's Economy to Grow at 8pct in 2012 with a New Deal with IMF

Standard Chartered Research Report Sees Slower Growth in 2012. "On the Ground: Sri Lanka – A Challenging Year Ahead"

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