"We are very bullish on Sri Lanka and we have overnight revised its economic growth forecast for this year from 7.2 percent to 8 percent. We believe the political arrangements and peace would drive this growth. But success would come at a cost and inflation is a significant risk," HSBC Asian Economic Research Co-head Frederic Neumann told journalists in Colombo via teleconference yesterday (7).

We believe the Central Bank should be proactive and tighten monetary policy further in order to anchor inflation and stabilise growth, he said.

High oil prices could harm the economy but we are not too worried. Sri Lanka’s economic growth momentum and strong remittances would cushion the raise in oil prices and we believe the economy would not be derailed.

He went on to say that several emerging Asian economies including China and South Korea would require a sharper increase in monetary policy rates, while Sri Lanka, along with India and the Philippines would not have to be aggressive.