Sri Lanka forecasts lower economic growth in 2012
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- Created on Wednesday, 14 March 2012 14:54
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Sri Lanka Central Bank’s projections now indicate that Sri Lanka’s GDP is likely to record a growth of 7.2 per cent in 2012, from the earlier projection of 8 per cent. At the same time, the recent policy measures are expected to lead to a moderation of aggregate demand which will have a dampening effect on prices, thereby offsetting to some extent, the supply side pressures on prices as a result of the recent upward adjustments to administered prices.
Sri Lanka's Central Bank has decided to maintain the current policy interest rates and the Statutory Reserve Ratio (SRR), the commercial banks' deposit requirement following its monthly Monetary Board meeting held Tuesday (13).
In the Monetary Policy Review released Wednesday the Central Bank of Sri Lanka said its Repurchase rate and the Reverse Repurchase rate would remain at 7.50 percent and 9.00 percent respectively. The SRR applicable to all rupee deposit liabilities of commercial banks will be at 8.00 percent.
Sri Lanka's economy recorded a high growth rate of above 8 percent for the second consecutive year in 2011 but for 2012, the Central Bank forecast a lower growth rate on Tuesday
The Bank lowered the projection for 2012 to 7.2 percent from an earlier projection of 8 percent growth rate noting that the policy measures implemented by both the government and the Central Bank last month will impact the rapid pace of growth in economy, particularly due to the resultant higher energy costs, decline in credit flows, and lower import related activity.
The imports increased substantially during the last year due to the expansion in domestic investment. This in turn led to a higher than expected deficit in the trade account of the balance of payments
However, the continued favorable performance of domestic supply has eased the adverse impact of rising commodity prices in international markets helping the inflation to remain at single digit levels over a three year period.
In February, the year-on-year inflation declined to 2.7 percent while the annual average inflation declined to 6.1 percent.
The Central Bank expressed hope that the new measures will encourage the industries as well as general public to find new avenues to conserve energy and reduce the expenditure on fuel imports to some extent.
