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Thursday, April 22, 2010

Sri Lanka's economic recovery more than forecast - Reuters reports

INTERVIEW-Sri Lanka '10 growth to be more than forecast-cbank - By Shihar Aneez

COLOMBO, April 22 (Reuters) - Sri Lanka's economic expansion is likely to be more than the 6.5 percent forecast this year due to rapid growth in infrastructure development and tourism, the central bank governor said on Thursday.

The $42 billion economy was originally expected to expand by a four-year high of 6.5 percent this year, from an eight-year low of 3.5 percent in 2009, according to central bank data.
"Indications are that it could go beyond that," Central Bank Governor Ajith Nivard Cabraal told Reuters in an interview.

"We expected the takeoff to happen in the second half. But we've seen positive signs emerging in the end of the first quarter. So it is likely we will have a little bit of advance period which can perhaps translate into better numbers."

Rapid activity in infrastructure development and tourism would be the catalyst for more-than-expected growth. Cabraal declined to give a number, saying the revised forecast was still being calculated.

The central bank kept its key policy rates unchanged at multi-year lows on Thursday for the fifth straight month to spur growth, but said it was watching strong liquidity in the market, which could create inflationary pressure.

Cabraal said the reason for high liquidity was the central bank buying dollars from the market to prevent sharp
appreciation of the rupee LKR=. He said the bank was weighing an increase of the statutory reserve ratio (SRR) of commercial banks.

"Increasing SRR is a good option right now. It seems to be an option more favourable than the policy rates. But still the time has not come for that," he said.

Despite preventing sharp rise in the currency, the governor said the central bank would allow the appreciating trend to take place without disturbing the economic activities.

"We will not permit it to appreciate unduly at a pace that will take investors by surprise. But the trend is fairly clear. We will allow a trend to take place. Our intervention is to ensure that the trend takes place in an orderly fashion."

The island nation's annual inflation slowed to 6.3 percent in march from a one-year high of 6.9 percent a month ago.

Despite high liquidity, demand-driven inflation is not a threat at the moment as the central bank has been draining money from the market, Cabraal said.

"The challenge would be to see that it is sustained. That's why we have been keeping the policy rates higher than the other countries though inflation is low," he said.
(Editing by Bryson Hull)

source - http://in.reuters.com