CB forecasts broad based growth

The Monetary Board of the Central Bank of Sri Lanka has decided to maintain the policy interest rates at their current levels and continue conducting open market operations more aggressively to mop up excess liquidity from the market and contain the growth of reserve money to targeted levels through a planned program of permitting the market to subscribe to the maturing Treasury Bill holdings of the Central Bank.

The CBSL in a press release said yesterday, "The latest available indicators point to a continuation of the growth momentum in 2005 with a broad-based expansion in all three sectors. The performance of the agriculture sector is likely to improve with favourable weather conditions.

The industrial sector will benefit from the expansion in all major sub sectors within factory industries, the increase in construction activities as well as the increase in hydropower generation as a result of improved weather. The services sector, which has continued to be the mainstay of overall growth, is expected to expand with the expected growth in telecommunications, port and transport services.

In the external sector, export earnings will continue to grow in 2005 aided by the favourable external environment. The increases in textile and garments, rubber products, leather products and petroleum exports are expected to contribute to the increase in exports.

External reserves have increased with the receipt of emergency assistance from the IMF, and loans from the ADB and the World Bank as well as increased private inflows.

The overall BOP too recorded a surplus of about US dollars 120 million as at 31 March 2005. Reflecting these developments, the rupee has appreciated against the US dollar by 5.0 per cent from 31 December 2004 to 08 April 2005.

The continued increase in international oil prices is a major concern, as it could worsen the trade balance and the fiscal sector through the increase in subsidy payments unless appropriate corrective measures are taken.

The current oil price, at around US dollars 55 per barrel is higher by more than US dollars 10 per barrel than the average prices in September, when domestic fuel prices were last adjusted.

The delays in making adjustments in oil prices will raise the subsidy payments by the government exerting pressure on the budget, pubic sector domestic borrowings and the external trade deficit through unabated fuel consumption.

Hence, adjusting domestic petroleum prices to reflect international oil prices would promote the use of fuel efficiently and economically, thereby entailing a positive impact on the BOP.