CB predicts 5.5% growth in 2016

By Charumini de Silva

Despite internal and external challenges, Central Bank Governor Arjuna Mahendran is confident Sri Lanka’s economy will average around 5% to 5.5% growth by the end of the year.  

“At the moment we are targeting something like 6% in the medium term for our GDP growth. This year we are quite conservative. We are looking at 5% to 5.5% GDP growth because we are constrained to some extent by the overhang of Government debt as well as some constraints on the export side, particularly the state of international demand and some infrastructure constraints,” he said, addressing the Sri Lanka-Singapore Business Forum in Colombo on 1 June.

In terms of inflation, he said that it was an area that the Central Bank was very concerned about and that it would not allow inflation to exceed 6%. 

“The good news is that credit is growing very strongly despite our tightening monetary policy in recent months. Credit growth has been in the range of over 25%, but now that’s probably a bit too high for our comfort. Hence, we have been tightening the monetary policy in the last three to four months. We have a band of 2% to 6% which is where we target inflation rates. We hope it will peak in the next six months and then start to subside once the impact of the tightened monetary policy takes place. We don’t envisage it going over 6%,” Mahendran explained.

He emphasised that development of infrastructure projects should be funded through Public-Private Partnership (PPP) frameworks instead of Government-financed projects, which would support a sustainable growth path for the Sri Lankan economy.

Commenting on the exchange rate, he pointed out that the Central Bank had established a good currency since September last year. “We try to keep the currency rate at competitive rates. We saw that it wasn’t really a good move to keep the currency pegged. Thereby, in September 2015, we moved to a new currency regime which we think is the way forward.”

Noting that the banking sector was in fairly good shape, the Governor said that they would be implementing Basel III by 2018.