Sri Lanka’s Central Bank observes that the recent tax revisions would support lower inflation and higher economic growth in the short term, but was of the view that greater clarity with regard to the medium-term fiscal path of the government is required to assess the impact on the economy over the medium term. Announcing the monetary policy review, The CBSL further noted the fiscal slippages thus far during the year. The Central Bank said that the Market lending rates are adjusting downwards, responding to the relaxation of monetary policy and the imposition of caps on lending interest rates of licensed banks and A further decline in market lending rates is expected in the period ahead in line with the measures taken so far and also as a result of reduced cost of funds on account of the recent reduction in effective tax on the banking sector. “Specifically, the Average Weighted Prime Lending Rate (AWPR) is expected to reduce by a further 70 basis points to 9.50 per cent by end 2019, while the Average Weighted Lending Rate (AWLR) is projected to decline by around 120 basis points to below 12.50 per cent by March 2020,” the Central Bank said. The Central Bank further noted that the economic growth is predicted to be modest during the remainder of the year, with likely subpar growth in Industry and Services activities as implied by leading indicators. “However, improved investor confidence, supported by political stability and fiscal stimulus-driven boost to aggregate demand, is expected to drive short term growth,” the Central Bank said.
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