Monetary Board remains positive

Wednesday, 17 November 2010 01:42 - - {{hitsCtrl.values.hits}}

Leaves policy rates unchanged in November review

The Monetary Board remains positive on the economy and its outlook following the November review leaving policy rates unchanged.

The Central Bank said recent domestic macroeconomic trends have been encouraging. Economic activity expanded significantly in real terms in the first two quarters of the year.

"External trade has recovered, and earnings from exports have recorded an increase for the first three quarters of the year," the Bank said following the November Monetary policy review.

The domestic foreign exchange market too has continued to remain stable. Meanwhile, international reserves of the country still continue to be at above targeted levels, which situation is likely to continue into the forthcoming period, notwithstanding the policy measures being introduced to deal with this situation.

Improved credit conditions have increased demand for credit. Credit flows to the private sector have shown an upward trend this year, with the year-on-year increase in credit granted by commercial banks to the private sector reaching 15.5 per cent by September. However, broad money growth remains compatible with the targeted path, with year-on-year growth in broad money hovering around 13 to 14 per cent during the quarter ending September.

By October this year, inflation, as per the Colombo Consumers’ Price Index (base=2002) was 6.6 per cent, year-on-year, while annual average inflation was 5.4 per cent.

Supply-side constraints, both internationally and domestically, which drove up prices of wheat and wheat based products, coconuts, and a few other commodities, contributed mainly to the increases in inflation in recent months. Nevertheless, inflation is expected to remain subdued at mid-single digits, on an annual average basis, by end year.

Taking into consideration these developments, the Monetary Board, at its meeting held on

15 November 2010, decided to maintain the policy interest rates of the Central Bank unchanged at their current levels. Accordingly, the Repurchase rate and the Reverse Repurchase rate of the Central Bank would remain at 7.25 per cent and 9.00 per cent, respectively. The release of the next regular statement on monetary policy will be on 14 December 2010.