CBSL expects 5-pct GDP growth in 2021; inflationary pressures to be addressed with policy intervention

The Monetary Board of the Central Bank has decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 4.50 percent and 5.50 percent, respectively.

According to the Central Bank, the economy is likely to have recorded a higher than expected growth rate in the first quarter of 2021.

“The ongoing vaccination drive throughout the country and the likely removal of mobility restrictions are expected to ease the impact of the current wave of COVID-19 on overall economic activity, thereby facilitating a sustained economic recovery towards achieving a GDP growth rate of around 5 percent in 2021,” the Central Bank said in its latest monetary policy review.

“Along with the expected recovery in the global economy and the improvements on the domestic front, the upward momentum of economic activity is envisaged to sustain over the medium term.”

The exchange rate has recorded a depreciation of 6.7 percent against the US dollar thus far during the year.

As of end June 2021, the gross official reserves were estimated at US dollars 4.0 billion excluding the bilateral currency swap facility with the People’s Bank of China of US dollars 1.5 billion.

“Although the level of foreign reserves could experience some variations in the period ahead, such developments are expected to be temporary, with the adequate financing strategies lined up to maintain reserves at sufficient levels and to meet all maturing debt servicing obligations of the government on time,” the Central Bank said.

Inflation is expected to remain broadly within the desired 4-6 percent range during the remainder of 2021.

The Central Bank stated that any buildup of sustained inflationary pressures will be addressed through appropriate measures over the medium term.

“The envisaged improvements in aggregate demand conditions stemming from the effects of the stimulus measures adopted by the Central Bank and the Government and the likely increases in global commodity prices may generate some inflationary pressures over the medium term,” the Central Bank said.

“Such pressures will be mitigated through timely policy intervention by the Central Bank, thereby ensuring the maintenance of inflation in mid-single digit levels over the medium term.”