Eight per cent growth in 2006, says CB Governor

SINGAPORE: Central Bank Governor Ajith Nivard Cabraal said that the economy was heading for eight per cent growth this year and may achieve a similar rate in 2007.

Cabraal told Reuters that the economic outlook appeared bright.

"The economy is strongly moving towards eight per cent growth this year," he said. "Eight per cent growth next year is not going to be easy but it is still achievable. That will happen as long as investment levels are maintained."

Sri Lanka continued to see stronger levels of foreign direct investment and the stock market has gained some 40 per cent this year, the Governor said.

"We are not going to get bogged down with security concerns," said Cabraal.

Cabraal, who was in Singapore to promote investment in Sri Lanka, said: "Inflation will come down over the next few months, though we may see a spike in December because of holiday demand. Next year we will see a more gradual decline."

The Central Bank expects inflation to move to single-digit levels next year as productivity improves and supply bottlenecks are addressed.

"We are happy with the way credit growth is moving, but not entirely overjoyed. Still, we have seen a distinct shift in the way banks are moving," he added. The International Monetary Fund said this month that Sri Lanka may need to tighten policy further to rein in credit growth.

But Cabraal said the Central Bank had to strike "a delicate balance" between fighting double-digit price increases and encouraging healthy growth rates in order to reduce poverty.

Sri Lanka, which produces no crude oil and has to import all of its needs, is also working to cut its energy bill, through hedging by State oil firm Ceypetco.

"It's a kind of insurance. This year, we didn't know what our exposure was. Next year, we know our maximum commitment," Cabraal said. "This will bring our bill down to much lower levels."

Cabraal said new techniques could help Sri Lanka reduce the country's Oil Import Bill by 10 per cent or more in 2007.

"Our foreign exchange rate will gain as a result," he said.

Singapore, Wednesday, Reuters