FINANCIAL CHRONICLE – The economic growth of Sri Lanka is anticipated to decelerate between 4% and 5% in the latter half of this year, primarily due to stringent monetary policies and rising prices, according to Central Bank Governor Nandalal Weerasinghe.
In May, the Central Bank increased its key monetary policy rate by 100 basis points following a rise in inflation from approximately 2% to 7.3% by July.
In an interview with Bloomberg regarding the nation’s overall economic outlook, Weerasinghe acknowledged the expected slowdown, stating, “While we may see a reduction in growth during the second half, it should still hover around 4-5%. This anticipated slowdown is a result of both the tight monetary policy and elevated prices.”
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He emphasized that although this could affect growth, it is not expected to be significantly detrimental, as circumstances are stabilizing. Weerasinghe projected that growth in the latter half of this year would remain around 4-5%, with a rebound to a more favorable growth rate of 5% anticipated in subsequent years.
Last month, the Central Bank opted to maintain its key monetary policy rates despite the inflation uptick, asserting that the existing rates were sufficient to control inflationary pressures.
According to official statistics, inflation in the island nation surged to 7.3%, marking the highest level since June 2023. The Central Bank attributed this increase largely to the government’s decision, supported by the IMF, to implement cost-reflective pricing for energy products.
This policy led to fuel prices in Sri Lanka escalating by over 50% within a two-month period, further fueling inflation.
However, Weerasinghe expressed optimism that inflation could stabilize around 5% if oil prices remain close to $80 per barrel through the end of the year.
He stated, “If oil prices stay around $80 per barrel as we approach the end of this year and into the next, we should be able to manage the situation.”
Weerasinghe cautioned that unexpected fluctuations could pose challenges, but he noted that current predictions suggest oil prices would remain stable. He is hopeful that inflation will decrease to the target level of 5% by the end of this year or early next year.
