The market interest rates have adjusted upwards in response to the tight monetary policy stance which has been in place since 2015. There has been broad money growth and monetary expansion continued at high level, Central Bank (CB) Governor Dr. Indrajith Coomaraswamy said.
The growth of private credit is on a declining trend and earnings from tourism and worker remittances continue to support the external current account, he said.
Remittances reached US $ 3.9 billion last year.
“Structural changes will support economic growth. We expect inflation to remain in the range of 4 to 6 percent. The economy grew 3.8 percent in Q1. It picked up in Q2 due to GSP plus and agricultural activities and the growth is expected to reach 4.5 percent in Q3,” he said.
However, worker remittances have declined and the Governor was hopeful that this trend will reverse. Temporary migration and growing exports will be positive for economic growth.
The biggest challenge is unskilled workers going abroad for jobs. There is a policy to curtail this, but we do not want to see a sharp decline in remittances which need for a dynamic economy, he said. “We are now in a new paradigm and are able to raise money reasonably. The main source of the instability in the economic system is the budget deficit. In the end, we need to have serious and painful adjustments,” he said.
The country’s construction industry is growing high and is reasonably robust. The property market has shown a slow down.
However, a moderate and gradual slow down is good. The Central Bank will work closely with the property developers with regard to macro credentials to keep it in a sustained manner to avoid a bubble.
There are demand side positives in the luxury property market. It is necessary to sustain the market to have positive growth, he said.