Inflation, interest rates tipped to fall: Economy trending in right direction – Governor | Sunday Observer

Inflation, interest rates tipped to fall: Economy trending in right direction – Governor

PIC: SAMAN MENDIS
PIC: SAMAN MENDIS

The Central Bank of Sri Lanka (CBSL) last week predicted that the island’s economy would recover in 2018 complemented by a fall in market interest rates in the near term and easing of the inflation rate to a modest range between 4%-6% by the first quarter of 2018.

Addressing a press conference, CBSL Governor, Dr. Indrajit Coomaraswamy said the significant decline in the yields on government... Continued on page 12

...securities since March 24 this year, the date on which CBSL last hiked policy rates, will eventually be reflected on other market interest rates such as lending and deposit rates in the short term.

“The one-year Treasury yields have declined by 208 basis points from the peak levels in March, correcting some disparity that existed between the policy rates and the yields on government securities. The expected further reduction will positively fuel growth,” the governor said.

On the other hand, Dr. Coomaraswamy whilst noting that inflation will trend downwards, advocated that the only way to transition to a low inflationary environment was to anchor inflation through the implementation of the proposed flexible inflation targeting regime.

According to the governor, although core inflation which the Central Bank has influence over, has been broadly on track, headline inflation has perked up due to wage pressures.

“The Monetary Board is watching a couple of things very carefully such as the wage settlements effected at the beginning of the year and inflation expectations. We hope to influence monetary policy as necessary going forward,” Dr. Coomaraswamy said.

“Even domestically, some of the concerns we had during the beginning of this year such as the sharp broad money growth and private sector credit growth have now moved down to the desired levels,” the governor emphasised.

The Central Bank will unveil its 2018 Roadmap on Wednesday, January 3.

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