Sri Lanka to Raise Growth Target as War Ends, Central Bank Says
Sri Lanka’s economy may expand at a faster pace this year than previously estimated as the nation rebuilds after ending a 26-year civil war, central bank Governor Nivard Cabraal said.
“We could be looking at something like 4 percent to 5 percent growth on the basis of war coming to an early end,” Cabraal told Bloomberg Television in an interview from Sri Lanka today. The Central Bank of Sri Lanka in April predicted the $32 billion economy would grow 2.5 percent, the slowest since 2001.
Sri Lanka’s central bank today cut the reverse repurchase rate, one of two benchmark rates, to 11.5 percent from 11.75 percent to revive an economy ravaged by the global recession and conflict. President Mahinda Rajapaksa is seeking international assistance to rebuild the nation after the army crushed the Liberation Tigers of Tamil Eelam this month.
“We do see a new momentum for our economy and at the same time we have created sufficient space to take a little more liberal view with the monetary policy,” Cabraal said. Inflation is under control and “we are on the threshold of a new era” with war being “a thing of the past.”
The central bank’s repurchase rate was left unchanged at 9 percent, and the so-called penal rate on reverse repurchase transactions was removed, according to a statement on the Colombo-based bank’s Web site today business cards template.
Lower borrowing costs are “important to speed up the reconstruction work and to boost local economic growth,” said Bimanee Meepagala, an analyst at Eagle NDB Fund Management Co. in Colombo. “Reconstruction, a larger area to cultivate and fish, and brighter prospects for tourism will enable the economy to post strong growth despite slowing external demand.”
IMF Loan
Sri Lanka said in March it’s in talks with the International Monetary Fund for a $1.9 billion loan to repay debts and rebuild the country.
“We already had indications from the managing director of the IMF that they would be resolving this issue very soon,” Cabraal said. “That will give us the added anchor for the development work that we are going to do.”
The Central Bank of Sri Lanka will intervene in foreign- exchange markets only to reduce excessive volatility as it seeks to maintain stability in the currency, he said.