Sri Lanka upgrades growth to 3.5-4.5-pct

July 1, 2009 (LBO) – Sri Lanka’s economy is forecast grow at a faster 3.5 to 4.5 percent in 2009, up from the 2.5 percent originally expected, following the end of a 30-year war and easier money, Central Bank Governor Nivard Cabraal said.

In June 2009, inflation rose 0.9 percent from a year earlier. It was the lowest inflation since February 2004, when prices also rose 0.9 percent.

The Central Bank warned that inflation may “move gradually upwards during the remainder of the year,” though it will be in single digits.

Most reasonably competent monetary authorities that maintain soft pegs with the US dollar, including China, Taiwan, Singapore as well as hard pegged Hong Kong have been able to keep inflation below 5.0 percent, except for an 8.0 percent spike last year.

Cabraal said falling inflation has allowed the monetary authority to cut rates steeply. During 2009, policy rates were cut 800 basis points to 11.0 percent.

The weighted average prime lending rate fell to 15.89 percent on June 26 from 18.50 percent.

But Harsha de Silva, lead economist of LirneAsia, a think tank, warned that the government was sucking up most of the credit available in the economy and money was not going to productive sectors.