Short-term growth to continue amidst inflation risks: CBSL
August 20, Colombo (LNW): The Central Bank of Sri Lanka’s Monetary Policy Report 2024 anticipates continued short-term growth supported by favourable policies, with a gradual alignment to its potential in the medium term.
The revival of import-dependent industries and a boost from large-scale infrastructure projects are expected to sustain this growth.
Additionally, a faster-than-expected recovery in tourism could further enhance economic momentum.
Recent reductions in energy prices have contributed to a decline in headline inflation, which is projected to remain below target through early 2025.
However, a temporary rise in inflation may occur in the latter half of 2025 before stabilising around the 5% target.
The report highlights potential risks, including increased wage demands, global food and energy price fluctuations, adverse weather affecting agricultural output, and depreciation of the rupee.
These factors could undermine inflation targets and overall economic stability.
The Central Bank has been actively adjusting its key policy rates, reducing them by 75 basis points this year, following a substantial 650 basis point cut in 2023.
This reflects an accommodative monetary stance aimed at fostering economic growth.
The report, aligned with Sections 27 and 80 of the Central Bank Act, serves to clarify the rationale behind recent monetary policy decisions and provide guidance on inflation and economic prospects.
It also notes potential challenges such as a high brain drain leading to labour shortages and decreased productivity, as well as the impact of political instability on economic recovery and growth.
