In a presentation “Road Map 2021: Monetary and Financial Sector Policies for 2021 and Beyond”, Professor W D Lakshman, Governor, Central Bank of Sri Lanka has said that the Sri Lankan economy is expected to record an annual contraction of around 3.9 per cent.
“The Central Bank is of the view that continued support through monetary and fiscal interventions is essential to provide adequate impetus to the economy amidst the challenging domestic and global macroeconomic conditions. Therefore, the Central Bank will continue the prevailing accommodative monetary policy stance in 2021 to ensure the envisaged recovery of economic activity. We would of course, be closely monitoring developments to avoid any strong demand-driven pressures on inflationary trends”, the presentation stated.
“It is well known that the Sri Lankan economy has been operating well below its potential for the past several years, and the outbreak of COVID-19 exacerbated this condition. Growth-conducive policy measures introduced in 2020, we believe, would take a while to be effectively transmitted to the real economy. To catch up with the lost momentum and to sustainably realign itself with the envisaged high growth path the economy would need some time. Until the economy reaches its full potential, it is unlikely that there would be any notable domestic demand pressures, despite the large monetary expansion witnessed at present. The Central Bank will continue to remain vigilant but is confident that inflation will remain within the targeted range of 4-6 per cent over the medium-term”, the presentation mentioned.
“The Central Bank and the Government will continue to pursue a coordinated approach in steering the economy through these challenging times. The successful implementation of the envisaged medium-term fiscal framework of the Government is imperative to achieve the needed fiscal space and to attain the targeted goal of a budget deficit of 4 percent of GDP by 2025. This would be of immense use in the envisaged programme of sustained stable growth with price stability. Low inflation, by helping to sustain the low interest rate regime, would bring down funding costs to both the Government and the private sector. The Central Bank will work jointly with the Government to introduce and implement essential structural changes that are required to drive the economy along the envisaged growth path”, the Central Bank added.