Inflation will continue to decline - CB Governor

By Lalin FERNANDOPULLE

The declining trend in inflation will continue to reach a single digit level by mid this year, said Central Bank Governor, Ajith Nivard Cabraal launching the ‘Road Map: Monetary and Financial Sector Policies for 2009 and Beyond’.

He said inflation has been moderating since July 2008 and in line with such deceleration inflation would reach around 8-9 per cent by mid this year. Interest rates are expected to follow the declining trend in inflation in 2009.

The country’s inflation reached around 28 per cent early last year, the highest in the region. Economists attributed poor monetary policies as causes for high inflation in the country.

The Central Bank is optimistic that the implementation of the recent economic stimulus policy package would help to achieve a growth rate around 6 per cent this year. Economic growth was initially revised downward to be around 5.0-5.5 per cent this year due to the global crisis.

According to Central Bank predictions the budget deficit is expected to decline to around 6.5 per cent of the GDP from 7 per cent last year. The budget deficit decline is based on an expected increase of 21 per cent in government revenue while expenditure and net lending is expected to increase by 17 per cent.

“The new year will be a challenging year for the financial sector. The global financial turmoil which has caused bank failures and a liquidity crunch globally highlights the significance of risk management and good governance in banks”, Cabraal said.

The prudent regulations adopted by the Central Bank helped the financial institutions to face the global economic crisis. The Central Bank will continue to be vigilant and work in collaboration with banks and financial institutions to ensure stability and prudent management of institutions.

He said despite global and internal challenges the economy maintained a growth rate of 6 per cent last year for the third consecutive year. Exports grew by 12.7 per cent during the first eight months of the year led by the performance in the traditional and minor agricultural crops.

“Development of the Northern and Eastern provinces will be a priority this year.The Poverty Alleviation Micro Finance Project (PAMP) phase II, a poverty alleviation micro finance scheme operated in the conflict areas and their border districts is expected to be operational in the Northern and Eastern provinces this year”, the Governor said.

“With the launch of the Prosperity Index, the Central Bank is more aware of the actual development needs of the country. This has undoubtedly streamlined our efforts in taking Sri Lanka towards prosperity”, he said.