Mar 14, 2012 (LBO) – Sri Lanka’s economic growth for 2012 has been downgraded to 7.2 percent from an earlier projected 8.0 percent, but inflationary pressures may remain weak, the Central Bank said amid measures to counter a balance of payments crisis. The central bank raised policy rates in February, allowed a rupee peg to break in February after it lost more than a quarter of its foreign reserves, amid strong credit growth.
The state also raised energy prices, which will reduce future unproductive credit to state-run energy enterprises. The Central Bank asked banks to limit credit growth to 18 percent in 2012 from over 34 percent in 2011.
The central bank said slower credit growth, higher energy prices and lower imports will reduce economic activity this year.
“In that background, the Central Bank’s projections now indicate that Sri Lanka’s GDP (gross domestic product) is likely to record a growth of 7.2 per cent in 2012, from the earlier projection of 8 per cent,” the Central Bank said in its March monetary policy statement.
“At the same time, the recent policy measures are expected to lead to a decline in aggregate demand which will have a moderating effect on prices, thereby offsetting to some extent, the supply side pressu