COLOMBO: The International Monetary Fund on Thursday forecast that Sri Lanka's economy would expand by 7 percent in 2011, lower than the 8.5 percent the central bank has targeted.

IMF Sri Lanka Country Director Koshy Mathai released the forecast at a press conference after the global lender cleared the release of the sixth tranche of a $2.6 billion loan.

Mathai also said there was no sign Sri Lanka's $50 billion economy would overheat in the near term, nor was there any indication that demand-driven inflation would pick up.

"Inflation is mainly due to supply shocks and we haven't seen any demand-driven inflation," he said.