Sri Lanka sees no overheating despite lower rates

Last Updated: Fri, Jul 04, 2014 17:40 hrs

COLOMBO, July 4 (Reuters) - Sri Lanka's economy can achieve its growth target this year without risk of overheating, central bank governor Ajith Nivard Cabraal said on Friday, despite interest rates at multi-year lows.

The central bank has been maintaining low interest rates since January and yields in government treasuries have also dropped to multi-year lows.

The island nation's economy expanded 7.6 percent in the first quarter of this year, slowing from 8.2 percent in the previous quarter. The central bank has estimated growth of 7.8 percent for 2014, higher than last year's 7.3 percent.

"Such growth is satisfactory and could be achieved without any risk of overheating according to our current estimates. Hence, we do not see a need to become more aggressive," Cabraal told a Reuters market forum. <-------------------------------------------------------------- For more: rmchat://room/ --------------------------------------------------------------->

Moody's Investors Service, while keeping a stable outlook for Sri Lanka's banking system, said on Thursday that the economy remains one of Asia's fastest-growing economies.

Srikanth Vadlamani, a Moody's vice president and senior analyst, said in a statement it estimated loan growth of 14 percent this year which it does not view as excessive.

Sri Lanka's economy achieved record growth of 8.2 percent in 2011 due to higher credit growth and imports, backed by low interest rates and a firm rupee.

However, the central bank had to tighten monetary policy, devalue its currency and allow for a flexible exchange rate to cool down the economy. Growth slowed to a three-year low of 6.4 percent in 2012. (Reporting by Shihar Aneez)

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