The Central Bank has kept policy rates unchanged following the October monetary policy review noting that some of the measures are yet to be reflected in macroeconomic data.

The Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6% and 7.50% respectively.

It said headline inflation, on a year-on-year (yoy) basis, declined further to -0.3% in September -0.2% recorded during the months of July and August 2015. On an annual average basis, headline inflation continued its moderation, recording 0.7% in September 2015 compared to 1% in the previous month.

However, reflecting the firming up of aggregate demand conditions, core inflation increased to 4.2% in September, on a yoy basis, from 3.9% in the previous month. 

It is expected that the headline inflation will remain comfortably in low single digit levels by end 2015 despite the impact of the depreciation of the Sri Lankan rupee against major currencies on inflation.

With regard to the external sector, the cumulative expenditure on imports amounted to $12,559 million during the first eight months of 2015, broadly unchanged from the corresponding period in 2014, while earnings from exports declined by 3.4% to $7,147 million during the same period.

Although the trade deficit narrowed in the month of August, it has widened in the first eight months of the year on a cumulative basis.

Gross official reserves, which stood at $6.5 billion at end August, are estimated to have increased to $6.8 billion by end September. It is expected to increase further during the remainder of the year with the anticipated long term external financial inflows to the Government, the Bank said.

At the same time, other regular inflows such as earnings from tourism and workers’ remittances also supported the external sector during this period. 

Earnings from tourism in the first nine months are estimated to have grown by 18.8% on a cumulative basis, while workers’ remittances also recorded a marginal growth of 1.8% in the first eight months of the year. 

Despite the rupee has depreciated by around 7% against the US dollar so far in 2015, the bank is confident that its decision to allow greater flexibility in the determination of the exchange rate and the expected realisation of other inflows to current and financial accounts are likely to strengthen the resilience of the external sector, going forward. 

It said, the real effective exchange rate indices have also adjusted, supporting the external competitiveness of the economy.