Nov. 21 (Bloomberg) -- Sri Lanka’s economy may grow at a record pace next year and inflation will probably stay at the ‘mid-single digit’ level, the central bank said before the federal budget announcement today.

Gross domestic product may increase 8.5 percent to 9 percent in 2012, from an estimated 8.3 percent this year, the Central Bank of Sri Lanka said in a report on its website. A 9 percent growth rate would be the fastest since 1950, when the monetary authority started collating data for GDP.

“Low inflation and high economic growth achieved by the Sri Lankan economy need to be sustained in order to safeguard macroeconomic stability and policy credibility,” the central bank said.

President Mahinda Rajapaksa may announce tax cuts on commercial banks, exporters and tourism companies in the budget for the year starting Jan. 1, said Samantha Amerasinghe, a Colombo-based economist at Standard Chartered Plc. The fiscal stimulus will help shield Sri Lanka’s economy as Europe’s debt crisis threatens to hurt the global recovery.

“We should view this budget in the context of the prevailing uncertainty due to the current global economic turmoil,” said Amerasinghe. “The government will try to create an enabling environment for the private sector to engage in the economic development process.”

Inflation in the South Asian nation slowed in October to 5.1 percent, the lowest level in 14 months.

The central bank left interest rates unchanged last week for a 10th straight month, keeping its reverse repurchase rate at 8.5 percent and the repurchase rate at 7 percent.

--Editors: Cherian Thomas, Shamim Adam

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net;

To contact the editors responsible for this story: Hari Govind at hgovind@bloomberg.net: