Sri Lanka Post-War Growth Stays Above 8%

Sri Lanka’s growth accelerated, exceeding 8 percent for a second straight quarter and reducing the scope for the central bank to cut interest rates.

Gross domestic product rose 8.4 percent in the three months ended Sept. 30 from a year earlier, the statistics department said on its website today. That compares with an 8.2 percent expansion in the previous quarter and the 8.1 percent median of five estimates in a Bloomberg News survey.

The central bank left borrowing costs unchanged on Dec. 16 for an eleventh month even as Europe’s debt crisis curbs Asian exports and prompts countries from Thailand to Indonesia to ease policy. Governor Ajith Nivard Cabraal said Nov. 29 that Sri Lanka will probably refrain from rate cuts for the rest of 2011 even as it has room to move, as last month’s 3 percent currency devaluation revives price pressures.

“The central bank should hold rates steady,” said Bimanee Meepagala, a Colombo-based analyst at NDB Aviva Wealth Management Ltd., the nation’s biggest non-state fund. “With credit growth and the rupee depreciation, they’ll need to keep a close eye on inflation.”

The benchmark Colombo All-Share Index (CSEALL), which has fallen 12 percent this year, was little changed at 10:32 a.m. local time. The Sri Lankan rupee traded at 113.90 per dollar, according to data compiled by Bloomberg.

Cabraal has kept the benchmark reverse repurchase rate at 8.5 percent since cutting it to that level in January. Consumer prices in the capital, Colombo, rose 4.7 percent in November, the smallest increase in 16 months.

Post-War Growth

The economy is expected to expand about 8 percent this year and next, reducing the need to stimulate growth through lower rates, Cabraal said Nov. 29.

The island’s growth has rebounded after the end of a 26- year civil war in May 2009 boosted infrastructure development, foreign investment and tourism.

The Sheraton Group will invest $300 million in a leisure project in Sri Lanka, the nation’s information department said Dec. 1. Singapore’s Mohamed Mustafa, a department-store operator, plans to invest $115 million in a hotel and shopping complex in Colombo, the Ministry of Economic Development said Dec. 12.

Foreign direct investments have likely exceeded the 2011 target of $1 billion, the central bank said Dec. 16.

Sri Lanka revised its tourist arrival target for this year to 800,000, a 22 percent increase from 2010, Nalaka Godahewa, chairman of the Tourism Development Authority, said Nov. 24.

Rice Harvest

The government said in August it expects a record rice output from the March-September Yala season, after heavy rains in January and early February caused floods in the northeast and some central regions of the island, damaging about a quarter of the crop in the previous growing season.

Sri Lanka’s agriculture expanded 6.2 percent in the third quarter from a year earlier, according to today’s report. Services increased 7.8 percent and industry grew 10.8 percent.

The International Monetary Fund said last month that Sri Lanka’s move to devalue the rupee on Nov. 22 will help boost exports and conserve foreign-exchange reserves. The fund has disbursed $1.75 billion to Sri Lanka under its $2.6 billion loan program.

Sri Lankan exports of items including tea, textiles and gems rose 20.4 percent in September from a year earlier, compared with a 72 percent gain in January. Europe accounts for 35 percent of the Indian Ocean island’s overseas sales.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net

To contact the editors responsible for this story: Hari Govind at hgovind@bloomberg.net; Stephanie Phang at sphang@bloomberg.net

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