"Inflation is within policy makers’ targets and that may reduce the risk of interest-rate changes," the Governor said in an interview with the Bloomberg in Singapore yesterday.

Sri Lanka’s $42 billion economy, which has been performing better than policy makers had expected, may expand as much as 8 percent in 2010 and 2011 as agriculture and tourism grow, he said.

If inflation “behaves the way we intended it to behave, I don’t see why it should not, then the policy rates seem to be reasonable in that scenario,” he said. “We think that our current regime is appropriate but we will keep a close tab on things as they unfold.”

“I don’t really see too much of a risk of rates changing, but at the same time, we would be watching very closely the oil prices, which are escalating,” the Governor said. “There is the growth momentum which we have to keep an eye on and local price movements that are taking place.”
Inflation may be at the lower end of the 4 percent-to-6 percent range projected for next year, he said.

Sri Lanka plans to ease foreign-exchange rules that will make it easier for Sri Lanka companies including insurers to invest overseas, the Central Bank Governor said. The changes will also encourage foreign companies to invest in Sri Lanka, he said.

Sri Lanka will narrow its budget deficit to about 6.8 percent of gross domestic product in 2011, from 8 percent of GDP this year, he added. The shortfall may be between 5 percent and 6 percent by 2012, he said.