Sri Lanka expects 7.8-pct growth and 5.0-pct inflation in 2014

Jan 03, 2014 (LBO) – Sri Lanka is expected to grow 7.8 percent in 2014 as business activities pick up with inflation targeted at 5.0-pct, Central Bank Governor Nivard Cabraal said. Sri Lanka has a pegged exchange rate, loosely anchored to the US dollar and money printed by the Central Bank through domestic asset acquisitions tends to generate balance of payments trouble and higher-than-US inflation when credit growth is strong.

Cabraal said policy would be tightened if ‘demand driven’ inflation and expectations pick up, signs of economic overheating occur, aggregate demand expands at a ‘high’ rate and ‘excessive’ monetary and credit expansion takes place.

The Central Bank expects reserve money – or the monetary base generated by the agency where final transaction in the economy are cleared – to grow 14 percent in 2014 up from an estimated 0.9 percent in 2013.

Broad money – which includes bank deposits – is expected to grow 16 percent from 8.0 percent.

Credit to the private business is projected to grow 16 percent in 2014, up from 8.0 percent.

The Central Bank, which has a monopoly in money, is the only agency that can generate or limit inflation in a country