Sri Lanka GDP growth below forecast; central bank holds interest rates

March 22, 2014 - 6:58:04 am
The broken letter “N” of the word “BANK” is hung with a wire to the main signboard of Sri Lanka’s Central Bank in Colombo yesterday.

COLOMBO: Sri Lanka’s economy grew a weaker-than-expected 7.3 percent last year, the country’s central bank said yesterday as it kept interest rates at multi-year lows as it looks to boost private investment and lending.

The Central Bank of Sri Lanka said last year’s expansion was much stronger than the 6.3 percent recorded in 2012 thanks to a pick-up in exports and foreign remittances.  However, the figure was below the bank’s 8.0 percent forecast as an expected rise in lending had not taken place.

“Credit to the private sector by commercial banks moderated, growing only by 5.2 percent in January 2014 in comparison to 7.5 percent in December 2013,” the bank said in its monthly review of the economy.

Officials said the softer data came as loans to the private sector rose just 15.5 percent last year, well short of estimates of 18 percent.

But the bank said its Monetary Board viewed the deceleration in those loans to be “temporary”.

It added: “Private sector credit is likely to rebound from the second quarter of (2014), supported by declining market lending rates, sufficient liquidity levels and increased demand for exports from the advanced economies.”

The bank kept rates on hold Friday after cutting them by 50 basis points to 8.0 percent in January — the lowest since it began publishing them in 1999 —as it looks to boost private-sector lending.

In January the bank said record remittances and tourism earnings helped wipe out a trade deficit in 2013 and improve foreign reserves in a country relying heavily on external debt. Sri Lankans employed abroad sent home $6.8bn over the year, up 13 percent from 2012 while earnings from tourism jumped 35 percent to $1.4bn in 2013, according to official figures.

They showed Sri Lanka’s overall balance of payments ended up with a surplus of $991m, compared with a modest surplus of $151m in 2012 and a deficit of $1.06bn in 2011.

The improvement in the balance of payments was also helped by garment exports which increased by 26 percent while the island’s main export commodities of tea and coconut also increased significantly.