IMF wants policy rates on hold; calls for structural reforms

The International Monetary Fund (IMF) Staff Mission yesterday said Sri Lanka should keep the current policy rates on hold and called for structural changes in order to boost economic growth.

Despite the Central Bank’s (CB) growth expectations of 7.5 percent for this year, the mission, which ended a post-programme monitoring discussion, forecasted the growth to be not above 6.5 percent.

“In the light of the risks facing Sri Lanka, the mission recommends the policy rates remain on hold, which will also give time to assess the impact of recent easing,” said IMF Mission Chief for Sri Lanka Todd Schneider.

Sri Lanka’s Central Bank has cut the policy rates twice since last December in order to stimulate economic growth. The economy grew 6.8 percent in the second quarter of 2013, accelerating from 6 percent in the first quarter.

Asked when the Central Bank should consider further reducing policy rates, Schneider said it depends on the private sector credit growth and the inflation behaviour during the second half of the year.

Schneider said Sri Lanka’s inflation growth is moderate and the inflation statistics are consistent with the broader macroeconomic picture.

The country’s headline inflation increased 6.3 percent during the 12 months to August from 6.1 percent in July.

Speaking on the structural reforms Schneider said, “Efforts to boost growth should focus on structural measures such as tariff reform, enhanced revenue mobilization to support capital expenditure and improvements in the general business climate.”