First Capital Research says considering the current economic conditions with better than expected GDP growth level and the considerable improvement in the Economic Health the Sri Lanka’s Central Bank current monetary policy is appropriate and no change is required.
According to First Capital (FC) Pre-Policy Analysis , Sri Lanka’s GDP for 2Q 2017 , grew by 4 % YoY in the 2Q 2017 with the industrial and the services activities recorded higher growth rates of 5.2% YoY and 4.5% YoY respectively.
FC research also upgrades private sector credit growth for 2017 to 16% from 14% amidst a possible pickup towards year end. Private sector credit figure saw an increase to Rs 53 bn in August 2017 despite slow down in the credit in July; FC believe overall credit is likely to continue to remain under control.
CCPI based headline inflation, accelerated on a YoY basis to 7.8% in Oct 2017 from 7.1% in Sep 2017. NCPI based inflation also accelerated on a YoY basis to 8.6% in Aug 2017 from 8.6% in Sep 2017.
However Core inflation remained under check decelerating to 5.8% in October 2017 from 6 % in September 2017. FC Research forecast November 2017 CCPI headline inflation to beat 7 % and CCPI core inflation at 4.7%.
FC Research believes point to point inflation will be dip beyond November 2017 despite food shortages due to higher base effect as increased VAT was implemented on November 2016.Further,Core inflation going forward is likely to be around the 5.0% mark over the next few months.
Sri Lanka’s forex reserves assets dropped by USD 418 Mn to USD 7.29 bn in September which was equivalent to about 4.5 months of imports from USD 6 bn reserve at end 2016.
The CBSL had net purchased USD 1.2 bn on a net basis from currency markets so far this year. FC Research believe Foreign Reserves are now at comfortable levels and likely to end the year around the USD 7.0Bn mark.
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