CB yet to provide inflation guidance, credit growth target for this year

• Indicates clear lack of policy direction from authorities 
• Private sector struggles to draw biz plans without such critical forecasts
• Commodities price boom, Russia-Ukraine conflict and rupee devaluation make forecasting even harder

Sri Lanka is operating neither with guidance for headline and core inflation nor a private sector credit growth target for this year, which can be taken as a lack of policy direction from the authorities to steer the economy forward. 
The private sector is scrambling to make its own forecasts and decisions as the Central Bank even after three months into the year has failed to come up with forecasts for inflation, private sector credit and real economic growth. 

Although the commodities price boom and the evolving developments in Russia and Ukraine have made the outlook more uncertain and murkier, the Central Bank is typically ought to provide guidance to the markets and economy at the onset of the year.

The rupee depreciation last week added a tailwind to inflation, albeit the impacts could be short term. 
“It is like we all are groping in the dark without any direction from the Central Bank or Finance Ministry on these key economic indicators and how they evolve in the course of the year,” said an economic analyst, who requested anonymity.  

While forecasting has never been more difficult than anytime, it is the responsibility of the authorities to provide an outlook for each of these key economic indicators at least with reasonable accuracy for others to make informed business and economic decision. 

Generally the Central Bank takes the initiative every year, either in January or December of the previous year, to give its economic outlook and the desired direction in a much-anticipated road map announcement. 
But that didn’t happen for 2022, as the six-month economic stabilisation road map took the front seat in October and its life is scheduled to lapse on March 31, 2022, with very little progress having been made. 

While inflation showed signs of easing through mid-February, Russia’s invasion of Ukraine on February 24 and the resultant spike in oil and commodities prices are expected to weigh on future inflation. 

The crude oil prices at Brent jumped 24.1 percent in February alone to US $ 113.5 a barrel while the other commodities such as natural gas, coal, wheat and steel rose 16 percent, 76 percent, 39 percent, 25 percent and 0.6 percent, respectively.

Sri Lanka’s consumer prices measured by the Colombo Consumer Price Index rose by 15.1 percent in the 12 months to February 2022, hitting a 13-year high and the food prices rose by 25.7 percent.
The Central Bank’s desired short to medium-term inflation was between 4 to 6 percent, which was broken many months ago.  

Sri Lanka’s private sector credit, which is an important barometer of economic dynamism, grew by a robust 13.1 percent in 2021, dispersing Rs.811 billion in fresh credit by commercial banks. 
Sharp rise in lending rates could slow things down dramatically although the appetite for credit is likely to remain.