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Cabraal Says Sri Lanka Policy to Bolster Growth, Curb Inflation

Jan. 2 (Bloomberg) -- Sri Lanka’s central bank will strive to contain price pressures while bolstering economic growth this year, Governor Ajith Nivard Cabraal said.

The island seeks inflation in the mid-single digits, and the government’s infrastructure drive will help boost expansion to 7.5 percent in 2013 from an estimated 6.5 percent in 2012, Cabraal said in his annual policy speech in Colombo today.

Sri Lanka raised interest rates in February and April last year and let the rupee weaken, part of a policy overhaul to damp import demand that stoked a trade deficit and pressured currency reserves. The monetary authority unexpectedly lowered borrowing costs for the first time since 2011 on Dec. 12 to support growth.

“The cycle of tightening was one of the shortest in our history,” due to the central bank’s “multi-pronged” policy strategy, Cabraal said. “We are deeply committed to a low inflation regime.”

The benchmark Colombo All-Share Index of stocks rose 0.3 percent at 1:27 p.m. local time. The Sri Lankan rupee, down more than 10 percent against the dollar in the past 12 months, was little changed.

Sri Lanka is easing limits on forward-market transactions, Cabraal said, adding the central bank would step in to prevent sharp exchange-rate movements.

“We support continued fiscal consolidation,” Cabraal also said today.

The nation’s economy expanded 4.8 percent in the third quarter of last year, the slowest pace since 2009 as faltering global demand hurt exports and a drought curbed farm output.

Inflation exceeded 9 percent for the sixth month in seven in December. That’s one of the highest rates in a basket of 17 Asia-Pacific economies tracked by Bloomberg.

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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