“The IMF has predicted that the local economy would grow at 3.7% and World Bank at 4.1% last year.”He said that with additional foreign exchange flowing in to the country and also country’s business outlook getting better he was confident of achieving the 5% growth rate. The Governor also said that with food prices dropping, drought subsiding and other positive factors the inflation too would remain around 5%.
Considering the favorable developments in inflation and the inflation outlook lower than expected real GDP growth which further widened the prevailing gap between the actual and potential GDP growth, the Monetary Board, at its meeting decided to reduce the Standing Lending Facility Rate (SLFR), which is the upper bound of the policy interest rate corridor of the Central Bank, by 25 basis points.
This decision is also expected to dampen the volatility observed in interest rates in the domestic market during the recent past. While the Central Bank’s monetary policy easing measure is expected to address the near term tepid growth prospects, it is essential that the planned structural reforms are carried out without delay for the economy to move towards a sustained high growth path in the medium term.On the external front, in January 2018, export performance improved both in terms of price and volume, which however was outpaced by the increase in imports, thus causing a widening of the trade deficit.
“Nevertheless, improved foreign exchange inflows in the form of earnings from tourism as well as workers’ remittances helped cushion the impact on the current account to some extent.”Improved competitiveness under the flexible exchange rate regime would help reduce the external current account deficit in the future. So far during the year, the Central Bank has been able to purchase over US dollars 400 million from the domestic foreign exchange market to build up international reserves, in addition to the net foreign exchange purchases of US dollars 1,664 million in 2017.Fiscal slippages in spite of the government’s efforts towards consolidation caused the overall fiscal deficit to deviate from its envisaged path in 2017.
