The Sri Lankan economy is projected to record a positive growth, year-on-year, in the latter half of 2023, said Central Bank Governor Dr. Nandalal Weerasinghe yesterday at the Monetary Policy Review Press conference.
This achievement is supported by a broad-based expansion in all major economic Sectors.
“The economy is estimated to have contracted by 3.1%, year-on-year, in the second quarter of 2023.”
While the continued normalisation of monetary policy and monetary conditions, improvements in business and investor sentiments, the relaxation of import restrictions, improvements in supply conditions, and the impact of growth promoting structural reforms are expected to support economic recovery in the period ahead, modest external demand conditions could weigh on expected growth in the near term.
“The market lending interest rates are expected to reduce in the future in line with the reduction in policy interest rates.”
The second tranche of the IMF disbursement to Sri Lanka will be delivered and it would not be defaulted, he said. “We can’t give a time frame but it will be given,” he said. He also said that in accordance to the new banking act they hope to maintain inflation around 5% in the future. It may increase or decrease by around 2% from time to time. However high oil prices may have a negative impact on inflation.”
Although credit extended to the private sector by licensed commercial banks recorded some expansion during the period from June to August 2023, a noteworthy recovery is yet to be observed.
During the eight months ending in August 2023, the trade deficit decreased notably, with a significant decrease in merchandise imports due to lower demand and import restrictions, and a relatively low decline in merchandise exports.
Earnings from tourism and workers’ remittances improved considerably thus far in 2023 and are expected to improve further in the period ahead. Net foreign investment inflows were recorded in the government securities market so far during the year despite some sizable outflows in recent months. The Sri Lanka rupee recorded an appreciation of around 12 % against the US dollar thus far during the year.
Following the settlement of the bilateral currency swap with Bangladesh Bank and the provision of liquidity to the domestic foreign exchange market to facilitate the restructuring of Sri Lanka Development Bonds as part of the domestic debt optimisation (DDO) operation, the level of gross official reserves was estimated at around US dollars 3.5 billion as at end September 2023, including the swap facility from the People’s Bank of China,” he added.
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Policy interest rates reduced further
Policy interest rates are further reduced in view of the faster deceleration of inflation. In consideration of the current and expected macroeconomic developments and the Monetary Policy Board of the Central Bank of Sri Lanka, at its meeting held on October 4, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 bps to 10% and 11%, respectively.
The Board anticipates a swift and sizable reduction in overall market lending interest rates in line with the monetary policy easing measures.
The Central Bank will continue to closely monitor the developments in market lending interest rates and review the administrative measures appropriately.
The Monetary Policy Board will continue to assess risks to the inflation outlook, among others, and stand ready to take appropriate measures to maintain domestic price stability in the period ahead while supporting the economy to reach its potential.
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