Debt-ridden Sri Lanka may need to cut interest rates again to further boost economic growth, the governor of Sri Lanka’s central bank said.
Sri Lanka’s central bank governor, Nandalal Weerasinghe, told CNBC on Friday that further rate cuts are on the way even after the central bank cut. lower policy rates It rose to 11% from 12% for the second straight month on Thursday.
Asked if further rate cuts were needed, the governor replied: “Of course.” He pointed to falling inflation in the Sri Lankan economy.
“We should need to lower interest rates further on the basis of forward-looking inflation, forward-looking output gap. It shows that we made the right decision,” Velasinghe told CNBC’s “Squawk Box Asia.”
A worker carries a bag of onions at a market in Colombo, July 4, 2023.
Ishara S. Kodikala AFP | Getty Images
Sri Lanka negotiated a nearly $3 billion bailout from the International Monetary Fund last year after thousands of protesters angry at the government’s economic mismanagement stormed the president’s residence and offices and ousted him from office.
Shares listed in the capital Colombo rose sharply earlier this week Parliament approves domestic debt restructuring plan last weekend.
Colombo’s CSE all-share index rose about 8% this week after parliament passed the plan needed for the IMF bailout.
Sri Lanka’s total debt has surpassed $83 billion Associated Press reportof which external debt is 41.5 billion US dollars and domestic debt is 42.1 billion US dollars.
Prices rose 12% in June in Sri Lanka, the latest government data showed, sharply down from a peak of nearly 70% in September last year.
The central banker is optimistic about the future of the economy. He predicted that inflation could drop to single digits and the economy could turn from contraction to growth next year.
“If you look at the future, forward-looking inflation, we will see very clearly that inflation will be at 7% at the end of July and by the end of the year, (inflation) will be in the low single digits,” he said.
Velasingh said further policy support from the central bank could help the country’s economic recovery.
“We hope (the rate cut) will provide some kind of support for the recovery in the second half of the year. Obviously, over the next full year, we expect the country to bounce back into positive territory,” he said.
Gross domestic product figures released last month showed the Sri Lankan economy contracting by 11.5% year-on-year in the first quarter of 2023.
Economic GDP has been in negative territory since the first quarter of 2022.