CB targets for 2009:
Five percent growth
The Sri Lankan economy demonstrated its resilience by recording a
real growth of 6 percent in 2008 in the midst of unprecedented and
unfavorable developments globally and domestically said Central Bank
(CB) Governor Ajith Nivard Cabraal.
“The CB is targeting an economic growth between 4.5 to 5 percent for
this year and is optimistic to achieve the target as all economic
fundamentals are in place,” Cabraal said at a media conference where it
released the annual report of the Central Bank of Sri Lanka for the year
He said in the midst of these extraordinary challenges, the Central
Bank continued its focus on achieving the two key objectives, namely,
economic and price stability and financial system stability during the
The Bank’s monetary policy strategy, which is mainly based on
restricting monetary expansion through quantitative targeting,
demonstrated its effectiveness by recording the sharpest ever
deceleration of year on year inflation from 28.2 percent in June 2008 to
5.3 percent by end March 2009, he said.
Cabraal also said that tumbling global food and energy prices and
allowing such price reduction to pass through to domestic prices,
together with favorable supply side shocks by way of higher domestic
agriculture production, also reinforced the monetary policy efforts in
achieving price stability.
“Despite the tight monetary policy restraining the expansion in
domestic demand and the looming global recession decelerating external
demand, agricultural production recorded a favorable development,”
He said that continuation of the implementation of major
infrastructure development projects also supported the economy to
maintain around 6 per cent economic growth for the fourth consecutive
Benefits of the continuation of high economic growth were reflected
both in the lowest ever levels of unemployment and poverty recorded
recently, he said.
The Central Bank Governor also said that prudential regulations and
timely action by the Central Bank enabled to maintain financial system
stability despite looming threats arising from excessive domestic credit
expansion in the past, high interest rates resulting from the tight
monetary policy, and the collapse of a domestic illegal deposit taking
institution linked to a major financial institution.
“Although the domestic financial sector did not have any adverse
impact from the global financial crisis due to the lack of exposure to
toxic assets, domestic commercial banks faced the challenges posed by
drying up of external credit lines for their operations,” he said.
Central Bank Chief Economist Director of Economic Research Dr
Nandalal Weerasinghe said that during the first part of the year, food
and energy crises in the global economy was threatening the
macroeconomic stability by way of sharply widening trade and current
account deficits, raising inflation to the highest ever levels since
He said that has exerting pressures on fiscal balances due to tax
exemptions arising from duty waivers granted in order to minimise the
impact of high food and energy prices on domestic cost of living coupled
with high defense expenditure and the cost of rehabilitation,
resettlement and reconstruction of the Eastern Province. Economic
activities will also be extended to the North he said.