Monetary Board to continue open market operations

The Monetary Board has decided to maintain the policy interest rates of the Central Bank at their current levels and continue with conducting open market operations aggressively, so as to bring down the monetary expansion to the desired path.

An assessment of the following factors that were taken into consideration in arriving at this decision having reviewed the recent economic developments and prospects.

The growth momentum in the economy is continuing with strong contributions from the services and industry sectors. Even though the growth in the agriculture sector declined during the first half of 2005 mainly due to the poor performance in the fishing industry as a result of the adverse impact of the tsunami, other sub-sectors have shown an improving performance.

The production of plantation crops, paddy as well as other subsidiary food crops is continuing to grow benefiting from favourable weather conditions.

The Yala paddy harvest in 2005 has been estimated at 1,114 thousand metric tons, which is an increase of 16 per cent over Yala 2004. The performance during the first half of 2005 and leading indicators of real sector activities show that the country is progressing to achieve a growth of 5.3 per cent as projected for 2005.

On the external front, foreign trade expanded with export earnings growing at 11.3 per cent and expenditure on imports growing at 13.5 per cent during the first nine months of the year. However, the trade deficit for the first nine months of the year increased by US dollars 306 million to US dollars 1,876 million partly due to the high petroleum import prices.