CB governor predicts growth rate above 4.5% | Sunday Observer

CB governor predicts growth rate above 4.5%

* Setback due to recent floods and drought

* Foreign reserves to be around USD 7.2 billion by the end of the year

* Number of housemaids to Qatar could create some impact on projected reserves

The economic growth rate will hover around 4.5 percent to five percent by the year end, which could be slightly down from the initial forecast, Central Bank Governor Dr. Indrajit Coomaraswamy said at a media briefing on the Monetary Policy Stance of the Central Bank on Friday.

“Growth would be somewhere around 4.5 percent this year as we do not exactly know the impact of the drought and the recent floods,” the Governor said.

However, the Central Bank is optimistic that the growth rate would be better in the second half as reconstruction would boost the economy.

“The upward trend in export earnings with the stimulus from the GSP Plus will contribute to growth performance this year,” Dr. Coomaraswamy said. The Central Bank is confident that the resurgence in growth in the major economies such as the US, Japan, China, France and Germany for the first time since the economic crisis, will have a positive impact on emerging economies.

“Sri Lanka will stand to benefit in terms of export earnings from the revival of economic growth in major economies,” the Governor said.

However, according to economists, the sharp contraction in the agricultural sector by around 3.2 percent with fruits declining by around 10.2 percent and value added tea by around 5.7 percent could have a stifling impact on the overall growth of the economy. The economy grew by 3.8% in the first quarter of this year up from a year earlier. However the growth is down compared to the 5.3% recorded during the last quarter of 2016. Though the Qatar crisis has not made a significant impact on worker remittances at present, in the long run it could have some effect on foreign exchange earnings as predicted by economists.

However, the governor said there would not be a significant slowdown on the Qatar economy as it has a massive reserve base. The concern for Sri Lanka is the slowdown in the number of housemaids to Qatar which could have some impact on the projected reserves for the year.

The Central Bank expects foreign reserves to be around USD 7.2 billion by the end of the year.

Worker remittances declined by 15.6 percent in May this year.

Credit to the private sector which has bee stubbornly high during the first few months this year decelerated to 20.0 percent in April compared to 20.4 percent in March. Credit to commercial banks too declined to Rs. 18.9 billion in April compared to Rs. 82 billion in March. Inflation decelerated to 7.1 per cent in May from 8.4 per cent in April 2017, on year-on-year basis mainly due to the base effect amid a monthly increase in NCPI. Both Food and Non-food categories contributed towards the year-on-year inflation in May 2017. The change in the NCPI measured on an annual average basis increased to 6.1 per cent in May 2017 from 6.0 per cent in April 2017.

The Central Bank predicts inflation to be in the mid single digit level by the end of the year.