Inflation, as measured by the year-on-year change in the Colombo Consumers’ Price Index (base=2002) declined for the third consecutive month, reaching 5.3 per cent in May. The annual average inflation increased marginally to 3.6 per cent in May 2010.
Inflationary pressures in the domestic economy remain subdued benefiting from dampened commodity prices in the international market and increased domestic agricultural output, the Central Bank said.
Growth in the money supply continues to moderate while accommodating an expansion in credit to the private sector.
Credit extended to the private sector by the commercial banks, which contracted during 2009, has recorded a positive growth since March 2010.
Expansion in credit obtained by the private sector indicates a gradual pick-up in economic activity, and this expansion is expected to gather momentum, particularly in view of the prevailing supportive monetary conditions.
Indicators of external sector performance point to encouraging developments.
Exports have recorded a healthy growth for the first quarter of 2010. Imports have also increased in line with the recovery in economic activity.
The recent relaxation of selected import tariff would provide additional impetus to the economic recovery under way.
Workers’ remittances, which have recorded a growth of 14.1 per cent, year-on-year, for the first quarter of 2010, meanwhile, continue to cushion the current account.
Further, the Central Bank continues to be a net buyer in the domestic foreign exchange market. Reflecting these trends, the foreign reserves of the country remain at comfortable levels.
Taking into consideration the above developments, the Monetary Board, at its meeting held on June 15, 2010, has decided to maintain the policy interest rates of the Central Bank unchanged.
source - www.dailynews.lk
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