Sri Lanka’s economic growth will pick up to 6.3 percent next year and the central bank is ready to adjust monetary policy if needed to support the economy, the monetary authority chief Indrajith Coomaraswamy said on Tuesday.
The $82 billion economy expanded 2.6 percent in the second quarter from a year earlier, slowing from 5.2 percent in the first, amid tight fiscal and monetary policy this year.
“We are forecasting 6.3 percent growth next year…this year, the growth will be just above 5 percent,” he told reporters in Colombo hours after the central bank said it was keeping its key policy rates steady.
Sri Lanka’s economy grew 4.8 percent in 2015.
The International Monetary Fund (IMF), which approved a $1.5 billion three-year loan in June, said this month that Sri Lanka’s macroeconomic and financial conditions have begun to stabilise and the island nation’s performance under its programme is satisfactory.
The government has planned to reduce the budget deficit to 5.4 percent of GDP this year, compared with 7.4 percent last year. It has also estimated next year’s budget deficit at 4.6 percent of GDP.
The central bank has raised the standing deposit facility rate and the standing lending facility rate by 100 basis points (bps) each since February, after increasing the statutory reserve ratio by 150 bps at the end of 2015.
Coomaraswamy said he would wait and see how aggressively the U.S. Federal Reserve’s monetary policy normalisation takes place given expected expansionary fiscal policies under President-elect Donald Trump.
“If that materialises, clearly the trajectory of interest rate rises within the U.S. is likely to be steeper than what was anticipated a month or two ago,” he said adding that Sri Lanka would have to maintain “premium prudent macroeconomic management” because it has fiscal and trade deficits.
He said the central bank was watching tight monetary and fiscal policies very carefully and if the country is able to have credible and sustained fiscal consolidation, there will be a need for a monetary policy review.
However, he said the central banks stands ready to ease monetary policy if growth slows.
“If we see the economy needs support, we will adjust the monetary policy. We don’t see that need as yet. We are ready to move, if there are signs of being too tight.” (Reuters)