Economic managers aiming at 1 per cent growth rate for SL

By Hiran H.Senewiratne

Local economic managers are trying their level best to keep the GDP growth rate at one percent but during the first quarter of the year the economy contracted by 1.6 percent due to external and internal factors, including the COVID 19 pandemic.

“We expect economic growth to be at least one percent for the entire year but the first quarter growth was minus 1.6 percent, as stated by the Department of Census and Statistics, which has several issues when calculating the growth rate. Therefore, we will be rectifying those issues in the future, working together with the Census and Statistics Department, Central Bank Governor Professor W.D Lakshman told the media yesterday.

‘As per the available indicators, the adverse impact of COVID-19 on economic activity during the second quarter of 2020 is likely to be substantial, Lakshman said at the monthly monetary policy review forum at the Central Bank Head Office in Colombo.

The Governor said, given the current and expected developments in the domestic economy and the financial market, the CBSL Monetary Board recognized the necessity to continue with its accommodative monetary policy stance.

Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank will remain at 4.50 percent and 5.50 percent, respectively.

“The Board recognized the necessity to continue the accommodative monetary policy stance, particularly as market lending rates are yet to reflect the full pass-through of policy easing measures implemented thus far, he said.

The CBSL Governor added – ‘The Board has decided to adopt targeted measures to reduce specific interest rates that it considered to be excessive, which would help marginal borrowers.

‘The Board anticipates a further reduction in overall market lending rates, thereby encouraging borrowing for productive economic activity and reinforcing support for COVID-19 hit businesses as well as the broader economy, given the conditions of subdued inflation.

“The Bank expects domestic economic activities, which were adversely affected by the COVID-19 pandemic, to recover in the second half of 2020.

‘However, the external sector continued to demonstrate resilience, reflecting the impact of prudent measures implemented amid the COVID-19 outbreak. The trade deficit has narrowed during the first half of 2020 and inflation is remaining at mid-single digits.

‘In spite of short term fluctuations, inflation is expected to remain broadly within the desired 4-6 per cent range in the near to medium term, with appropriate policy measures.

‘Growth of credit extended to the private sector by commercial banks decelerated in June 2020, for the second consecutive month. However, a gradual recovery in credit extended to the private sector is expected in the period ahead.

‘The Central Bank will continue to monitor domestic and global macroeconomic and financial market developments and take further measures to support the economy to return to a higher growth path without delay, given subdued levels of inflation.’