It has upgraded real GDP growth forecast in 2014 and 2015 to 7.7% and 7.5%, respectively (from 7.1% and 6.6% previously).
It said that the Central Bank of Sri Lanka (CBSL) will keep its standing lending facility rate and standing deposit facility rate unchanged at 8.00% and 6.50%, respectively over the course of 2014 and 2015, as inflation will remain relatively subdued and the strong economic growth momentum will likely continue over the coming quarters. That said, the central bank has room to cut rates shouldprivate sector credit growth remain weak and decelerate further.
The report remain neutral on the Sri Lankan rupee, expecting the unit to remain fairly stable against the US dollar over the coming months,as the CBSL continues to anchor the currency. The report says that the rupee will only depreciate slightly in 2015 and 2016, as a combination of robust growth outlook and strong foreign inflows will suppress the depreciatory pressure exerted from the country’s current account deficit. It forecasts the currency to end 2015 at LKR 132.00/USD followed by LKR 133.00/USD in 2016.
It says that the progress of fiscal consolidation in Sri Lanka will remain slow, which will keep the budget deficit at elevated levels over the coming years and maintains forecast for the country’s fiscal deficit to narrow modestly to 5.0% of GDP in 2015 from 5.4%in 2014 and 5.9% in 2013. It also expect the country’s public debt to-GDP ratio to continue on its long-term downtrend, reaching 74.6%in 2015 from 76.3% in 2014, due to the country’s rapid economic growth and improvements in its fiscal deficit.
It reports that visits by Chinese President Xi Jinping and Japanese Prime Minister Shinzo Abe on two separate occasions will further strengthen ties with Sri Lanka, bolstering the country’s economic development over the coming years, through increasing foreign direct investment and trade.
Major Forecast Changes
The report upgraded real GDP growth forecast to 7.7% for 2014 and 7.5% for 2015 from 7.1% and 6.6% previously on the back of sustained strong performance in the industrial and services sectors.
It has downgraded the forecasts for consumer price inflation(CPI) to average 4.5% from 5.1% in 2014 on the back of a benign inflationary environment in the past few months, combined with disinflationary dynamics such as sluggish broad money supply growth,which remain in play in the country. (Market Research)