Economic growth lower than target this year

The Central Bank said this week that economic growth will slow down to around 6.7 per cent this year, down from the target of over seven percent.

It said exports in September recorded a growth of 19.2 per cent, benefiting particularly from the impressive performance in the agriculture sector, led by exports of tea. The rising international commodity prices caused the import expenditure also to increase compared with the previous month. However, the higher growth in exports over that of imports has led to the narrowing of the trade deficit during the January – September period compared with the same period of 2006, the Bank said.
The Bank said it has been been able to achieve its quarterly growth targets for reserve money as well as the indicative target for October 2007. The tight monetary policy measures adopted by the Central Bank have helped contain the growth in the money supply, though it still remains above the desired level.

Inflation, as measured by the point to point change in the Colombo Consumers’ Price Index (CCPI) which increased by 17.3 per cent in September, surged to 19.6 per cent in October led by high international commodity prices including petroleum prices. However, inflation is expected to moderate when the one-off impact of such increases are diminished, supported by domestic supply improvements as well as the continuous containment of demand pressures in the economy through the tight monetary policy stance adopted by the Central Bank.

“With the inflow of US$500 million from the debut international sovereign bond issue, both interest rates and exchange rates have now stabilised. The excess liquidity has also been siphoned off through open market operations. In order to neutralise any build up of demand pressures in the economy and curtail the demand driven inflation arising from excess liquidity, the maintenance of liquidity at a desirable level is warranted and therefore, the required steps in this regard would be taken by the Central Bank as and when necessary,” the statement said.