Economists surveyed by Bloomberg during the last couple of days forecasted slightly higher interest rates in the Sri Lankan economy towards the latter part of the year from what is prevailing at present.
According to a Bloomberg quarterly survey on the Sri Lankan economy conducted with the inputs from 10 economists between June 30 and July 04, has revealed that the median of these 10 economists expect the reverse repurchase rate or the rate at which the money is injected into the banking system to reach 9.00 percent from the existing 8.75 percent.
This is effectively a 25-basis point increase in the interest rates during the second half of 2017 before starting to ease during 2018. Meanwhile, the repurchase rate or the rate at which the excess liquidity in the banking sector is absorbed is forecasted to rise to 7.38 percent from the current 7.25 percent.
The views of the economists interviewed by Bloomberg are in contradiction with what the Central Bank expects for the interest rates to behave during the remainder of the year.
In fact during the last couple of months, Sri Lanka’s Treasury Bill rates were seen easing and the bank deposit rates falling.
The economists also forecasted corresponding increases in 3 – month interbank rates, 2 – year notes and 10 year bonds by between 15 to 93 basis points in line with the expected increase in key policy rates.
They have also forecasted the economy to grow by no more than 4.5 percent during 2017 before accelerating to 5.0 percent and 5.40 percent in 2018 and 2019 respectively.
A fortnight ago, the Central Bank downgraded its growth forecast for the economy from 5.0 to 5.5 percent to 4.5 to 5.0 percent due to slowdown in economic activities and the destruction caused by extreme weather conditions.
Sri Lanka’s economic growth slowed to just 3.8 percent during the 1Q17, significantly lower from the same quarter a year ago and also from the final quarter in 2016.