Reaching five per cent growth this year seems achievable given the GDP growth figures in the first quarter this year, said a senior official of the Central Bank (CB) following the release of the first quarter data last week.
“Going by the first quarter growth performance of the economy notching around five percent would not be an impossible task as other indicators such as industrial activities indicate an all-time high growth,” Director, Economic Research Central Bank, Dr. Chandranath Amaerasekera said.
GDP growth for the first quarter this year according to estimates released last week has been a 4.3 per cent positive growth rate compared to the 1.8 percent growth notched in the corresponding quarter last year.
The GDP for the first quarter this year at constant price had increased to Rs. 2,393,922 million from Rs. 2.295,432 million recorded in the first quarter of 2020. In addition the GDP for the first quarter 2021 at current price had increased to Rs. 4,173,783 million from Rs. 3,844,079 million recorded in the corresponding quarter of 2020 registering a 8.6 percent change in the current price GDP.
On speculation about a crisis in the forex market a Central Bank official said the behaviour and frontloading of imports have caused undue pressures in the domestic foreign exchange market.
However, economists and industry experts have voiced concerns about the impact of an extended control of imports on domestic industries which supports a large segment of the population.
The government banned imports on most non-essential commodities to curtail the outflow of foreign exchange in view of the resettlement of foreign debts.
As of end June 2021, the gross official reserves were estimated at USD 4.0 bn, similar to the levels observed at end May 2021 (this does not include the bilateral currency swap facility amounting to CNY 10 bn (equivalent to approximately USD 1.5 bn) between PBoC and the Central Bank).
The Central Bank noted that although the level of foreign reserves could experience some variations in the period ahead, such developments are expected to be temporary, with the adequate financing strategies lined up to maintain reserves at sufficient levels and to meet all maturing debt servicing obligations of the Government on time.
The ongoing vaccination drive throughout the country and the likely removal of mobility restrictions are expected to ease the impact of the current wave of COVID-19 on overall economic activity, thereby facilitating a sustained economic recovery towards achieving a GDP growth rate of around 5% in 2021.
Market interest rates remain low, facilitating increased credit flows to the private sector. In response to the monetary policy easing measures adopted by the Central Bank, most market deposit and lending interest rates have declined to their historic low levels.
Prevailing low interest rates and the surplus rupee liquidity in the domestic money market enabled the flow of low cost credit to the economy, thus supporting the revival of economic activity.
Credit extended to the private sector expanded notably during the period from January to May 2021, and this momentum is expected to sustain through 2021. The Central Bank expects domestic investors to make use of the low interest rate environment to expand their productive economic activities and explore new opportunities that are being created in the economy aimed at local and international markets.
Any buildup of sustained inflationary pressures will be addressed through appropriate measures over the medium term Inflation remains moderate, given the subdued aggregate demand conditions, although food inflation has accelerated due to supply-side disruptions. Inflation is expected to remain broadly within the desired 4-6 per cent range during the remainder of this year.