Saturday, October 23, 2010

CB Chief says 8% growth in Q3, full year

By Ranga Sirilal

KILINOCHCHI, Sri Lanka  (Reuters) – Sri Lanka’s economy will expand by close to 8 percent in the third quarter of 2010 and full-year growth could hit the upper limit of 8 percent, the Central Bank governor said on Thursday.

The $42 billion economy expanded at an eight-year of 8.5 percent in the second quarter, which prompted the Central Bank to revise up its full-year growth estimate to between 7.5 percent to  8 percent on 21 September.

He put full-year growth at close to 8 percent, the top end of his previous forecast of 7.5-8 percent. Growth last year hit an eight-year low of 3.5 percent. “The third quarter growth, we believe, will be close to the 8 percent mark,” Governor Ajith Nivard Cabraal told Reuters while on an inspection tour to see economic activities in the former war zone in the island’s north.

 Cabraal said renewed private-sector credit growth, which grew at 12.8 percent in August, will not cause demand-pull inflation, something the market has been worried may happen.

The official third quarter growth figures will be released in mid-December by the Census and Statistics Department.

The Central Bank has assumed an easing monetary policy stance since November 2008 to boost the economy as it emerges from the global recession and the end of a 25-year war in May last year.
Private sector credit growth, which had contracted for 12 months since March 2009, is now on an expansionary path with August data showing a more-than-expected 12.8 percent month-on-month rise from an 8.9 percent in July.

The Central Bank had expected credit to grow at 15 percent by the end of this year. Economists have warned of possible demand-driven inflation due to the lower interest rate regime under Sri Lanka’s expansionary fiscal policies.

“Still we have a lot of space where the credit growth has taken place without causing any damage to the demand-pull inflation. So we are confident it will not have an impact on inflation.” Cabraal said.

The market expects inflation to accelerate after a rise in yields in Treasury bills in the last three auctions as annual inflation has been on an uptrend since July, hitting a five-month high in September. On Wednesday, the Central Bank stopped its liquidity mopping up process via overnight auctions under open market operations as the rates in the auction have been higher than policy rate and T-bill yields.

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