May 14, 2018 (LBO) – Sri Lanka’s will grow at 3.7 percent in the first quarter of 2018, althought this below the islands potential, the Governor of the Central Bank said.
“The growth will be supported by the services sector, but is still below potential,” Dr. Indrajit Coomaraswamy, Central Bank Governor told reporters in Colombo recently.
The Monetary Board kept policy rates unchanged as the impact of the previous decision to end tightening last month had not yet filtered into the market, the Banks officials said.
“It’s still too early to see the impact of relaxation. The overarching objective was to give a signal that the tightening bias was over and policy was moving to a neutral space.”
They said that there is no change in circumstances to warrant a quick change in policy. Inflation will see an uptick but not above the 4 -6 percent target even though the numbers may challenge the upper level of the band around July.
“The slight uptick in credit and monetary aggregate was due to seasonal trends.”
“We have not observed much wage pressure and there is still an output gap. First quarter growth is still below the potential growth rate of the economy.”
Data presented showed that the rupee depreciated 3.2 percent up to 11 May.
The Governor said that such depreciation was questionable given the high levels of reserves that the Central Bank had accumulated.
The Central Bank has spent about 136 million dollars defending the currency but has also bought about 30 million dollars from the market resulting in net spending of 100 million dollars.
“We intervened in the market is because the movement of the rupee was not well aligned with the market fundamentals; the rate of depreciation on those days was much higher than was warranted,”
“We will continue to monitor the markets for the next fortnight or so to prevent any manipulations.”
He added that the system was transparent and that market participants must also be disciplined and not try to manipulate the market.
“We will be very alert to see whether there is any manipulation and if we do notice any manipulation we will take very stern action.”