Sri Lanka GDP May Rise 8%, Priority Is Inflation, Cabraal Says

The Sri Lankan economy may expand 8
percent this year as the island’s central bank strives to
contain price pressures while supporting growth, Governor Ajith Nivard Cabraal said.

“Our priority is inflation,” Cabraal said in Colombo in his
annual monetary policy speech today. Agriculture, tourism and
construction will be the main drivers of the expansion in gross
domestic product, he said.

Sri Lanka’s central bank left interest rates unchanged for
an 11th month in December, saying rising food supplies will help
damp inflation as it joined neighbors from India to Indonesia in
holding borrowing costs to shield growth. The island devalued
its rupee by about 3 percent in November to spur exports as
Europe’s fiscal crisis threatens to sap demand for Asian goods.

The rupee’s exchange rate is competitive and Sri Lanka has
to maintain stability in the currency, Cabraal said. While gross
foreign-exchange reserves were at a “comfortable” level of $6
billion at the end of 2011, the nation is feeling some balance
of payments pressure, he also said.

The benchmark Colombo All-Share Index (CSEALL) of stocks fell 0.4
percent as of 12:44 p.m. local time today. The Sri Lankan rupee
was little changed at 113.88 per dollar, according to data
compiled by Bloomberg. It closed at 110.32 per dollar before the
Nov. 22 devaluation.

The $50 billion Sri Lankan economy expanded 8.3 percent in
2011, Cabraal said. Inflation, which held at close to 5 percent
in December, may be 5 percent to 6 percent in 2012, he said.

Foreign Investment

The end of a civil war in 2009 has boosted agricultural
supplies, encouraged tourism and attracted foreign investment.
Foreign-direct investment exceeded $1 billion last year, Cabraal

Still, financial weakness is a “key” credit-rating
constraint for the island, Moody’s Investors Service said in a
report today.

Sri Lanka’s debt-to-GDP ratio fell to 78 percent in 2011
and the island will work toward further reducing public debt,
Cabraal said.

He said an International Monetary Fund mission is due in
Colombo this month. The fund has disbursed $1.75 billion to Sri
Lanka under its $2.6 billion loan program.

The nation is keen to complete the IMF program, Sarath Amunugama, senior minister for international monetary
cooperation, said by telephone from Colombo today. At the same
time, it is “not pressed” for foreign exchange and the
government won’t rush into more rupee adjustments, he said.

The Central Bank of Sri Lanka’s next interest-rate (SLMMRVRT) decision
is due Jan. 13. Its repurchase rate is 7 percent and the reverse
repurchase rate is 8.5 percent.

To contact the reporter on this story:
Anusha Ondaatjie in Colombo at

To contact the editors responsible for this story:
Hari Govind at;
Stephanie Phang at


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