Sri Lanka building platform for faster growth - Cabraal

8 August 2012 03:21 am

Sri Lanka’s efforts to narrow its trade deficit and contain inflation will place the island on a platform for faster economic growth, Ajith Nivard Cabraal, governor of the Central Bank of Sri Lanka said yesterday.

Cabraal spoke in an interview with Bloomberg Television after the central bank held interest rates for a fourth month.

On the decision to keep benchmark interest rates on hold: “We are keeping these rates unchanged because we have seen very clearly that the measures that we have put in place in February and March are working in the way that we have wanted it to work, so therefore we don’t see any reason to make any changes right now, and we will be quite comfortable with the results so far and we will stay on the same course as we have already started now.”

On joining global policy easing: “It’s unlikely that we will do that right away because we have seen that there is some tension in our inflation front as well, so we do not want to give any signal that we are fueling that further.”

On the policy outlook and growth prospects: “We would see, first of all, that our policy decisions that we have taken are working in the way we have wanted it. We had to deal with the trade deficit that was rising. We are well on track now to see that that is addressed. Once that is addressed we will then be concentrating more on the growth momentum. We will have a growth which is fairly substantial this year but nevertheless as you know it is a cut from the previous 8 percent that we have had.

“So this year it’s right about 7.2 percent. We still see the economy moving without any sluggishness but next year we will be poised to have better growth story and we will then be ready to make any changes towards the end of this year.

“We are looking at 8 percent growth once again and we think that that is manageable but to do that we need to ensure that our macro fundamentals are on the right framework by the end of this year. So that’s the main objective of our policy decisions and we are on course to achieve that. And once we find that around October, November, that we are on track and that there is no risk of that failing, then we’ll be a lot more confident about taking further measures to spur the growth from 2013 onwards.”

On further International Monetary Fund engagement: “The exact sums have not been worked out as yet but we have agreed between the two parties that we would be going into what is known as Extended Funds Facility, that’s about the main consensus that we have reached so far.

But beyond that there will be details that will obviously have to be worked out but we will do that towards the end of September when the next submission is due. But our own view is that we don’t need to have a standby arrangement any longer because we are comfortably placed with our reserves right now. But having the IMF with us in the current global conditions will be a bonus and we will certainly want to work out a methodology to have them with us over the next couple of years.”

(Courtesy Bloomberg)