Sri Lanka reported a trade deficit for June that was the smallest since February 2011, which officials attributed to tough monetary policies introduced this year. The June deficit was US$663.2 million, or 22 percent lower than a year earlier.

The central bank has raised its key policy rates twice since February to two-year highs. It has restricted credit growth, and allowed flexibility in the rupee exchange rate to fight a trade deficit that ballooned to a record US$9.7 billion last year.
“Now the adjustments are becoming visible,'' Central Bank Governor Ajith Nivard Cabraal told Reuters referring to the policy measures. “Trade deficit reduction will be more clear in future.''

Imports fell 15 percent in June to US$1.419 billion, while exports dropped 7.9 percent to US$755.8 million, led by garments and agricultural products, on lower global prices as well as flagging demand in Europe and the United States.

For the first six months of 2012, imports gained 4.2 percent to US$9.67 billion, while exports fell 2.2 percent to US$4.97 billion, resulting the trade deficit of US$4.7 billion, 12 percent wider than a year earlier.

Sri Lanka aims to cut the full-year trade deficit by 5.1 percent to US$9.2 billion, with an import bill of US$20.9 billion and export revenue of US$11.7 billion.
Cabraal said sluggish external trade has been factored into this year’s economic growth projection, which was reduced in March to 7.2 percent from 8 percent. Sri Lanka had record growth of 8.3 percent last year.

“We have envisaged the growth to slow down and our policies have been comfortable, not too warm and not too cold,'' he said.

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