predicts stronger economic growth by year’s end:
Inflation expected to comedown to 7% level in July 2023:
Exchange rate continues to reflect positive market sentiments :
Central Bank Governor Dr. Nandalal Weerasinghe yesterday stated that action will be taken against banks and other financial institutions if they do not reduce interest rates in line with the reduction in policy interest rates.
He stressed that the Central Bank will be closely monitoring financial institutions in order to ensure that customers will get the benefit of reduced interest rates.
As the Sri Lankan economy is bouncing back sooner than expected, the previously predicted economic growth rates will be better at the end of this year, Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe said yesterday.
“This recovery is expected to sustain, thereby gradually closing the large negative output gap that exists in the economy and reaching the potential level of economic growth over the medium-term. Due to the huge economic crisis which was evident one
year ago, Sri Lanka growth rate would still be minus. “But certainly projected targets would be better.”
The Governor also said that the downward trend in inflation would continue further and inflation is expected to come down to a 7% level in July 2023 resulting in easing price pressures across many categories.
Earnings from tourism as well as workers’ remittances improved and this momentum is expected to continue.
The Exchange rate continues to reflect positive market sentiments by the improvement in liquidity in the domestic forex market and this too is expected to continue.
He said that the interest rates too have come down and this should help to spur further economic development. The trade deficit decreased notably during the five months ending May 2023 thereby easing BOP pressures.
Import restrictions related to 286 HS codes were removed.
Further relaxations of restrictions on selected items are expected soon but he said that they have recommended not allowing vehicle imports for now.
A gradual turnaround is expected in credit to the private sector with the easing of monetary conditions and the envisaged rebound of economic activity and the easing of the monetary policy stance will help normalize the interest rate structure in the period ahead.
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on July 5, 2023, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 200 basis points (bps) to 11.00 per cent and 12.00 per cent, respectively.
The Board expects that, with this reduction of policy interest rates by 200 bps, and the reduction of policy interest rates by 250 bps in early June 2023, along with the significant reduction of risk premia on Government Securities witnessed recently, the market interest rates, particularly lending rates, will adjust downwards adequately and swiftly. “This will help to spur economic development again.”