Economy grows at 7% in 2Q

The Sri Lankan economy grew 7 percent in the second quarter (2Q) accelerating from the 6 percent growth reported in the first quarter of 2013, Central Bank Governor Ajith Nivard Cabraal said in an interview with Bloomberg in Hong Kong.

“Our second quarter figures have just come out and we had a 7 percent growth in the second quarter, which shows that we are well on target to achieve the 7.5 percent growth for this year,” Cabraal said.

The 2Q GDP growth however is in contrast to the view of many analysts who observed a slowdown in the Sri Lankan economy in the second quarter continuing to the balance part of the year as well.

The economy grew by 6.4 percent in the corresponding quarter in 2012.

Governor Cabraal confided that the current trend in the economic growth would provide a platform to achieve the 8 percent growth projected by the Central Bank for 2014.

Meanwhile, despite the current volatility due to the fears of Fed stimulus tapering, Cabraal said the Sri Lankan rupee should remain at the present levels against the dollar. “If the inflation behaves the way we wanted that to (and so far it has worked in that way), the rupee should also be at the levels we are presently seeing it,” Cabraal said.

Declining to give a projection on the rupee he said, “It’s very difficult for us to predict what could take place because our neighbouring countries as well as our trading partners are also undergoing serious changes.”

The Sri Lankan rupee had its worst fall on August 28 to Rs.135 to the US dollar. However, Cabraal attributed it to a temporary aberration.

Since June 7, the Sri Lankan rupee has fallen 5 percent, partly due to foreigners pulling out of the Sri Lankan treasury bonds. Sri Lanka’s spot rupee at yesterday’s open was Rs.132.91 to a dollar.

Last month the Central Bank intervened in the forex markets helping to strengthen the rupee.

Cabraal further said the currency volatility was much less in Sri Lanka relative to other countries because the country did not invite a lot of hot money during the past one year.

“Most of the investments to Sri Lanka came in the preQuantitative Easing era. As a result, we are pretty confident of maintaining those levels of investments without any major shift in the investments in the country,” he confided.