Govt geared to decrease inflation

COLOMBO: The Central Bank said yesterday that decisions taken at the National Economic Council (NEC) meeting recently would help the Government to bring down inflation to the targeted level by year end.

In addition to the measures taken by the Central Bank so far, in early February 2007, the Central Bank brought its concerns relating to rising inflation to the notice of the NEC chaired by President Mahinda Rajapaksa.

Arising from the decisions taken at the NEC meeting, the Secretary to the President has issued instructions to the relevant Ministries to take action as recommended by the Central Bank to address the causes of rising inflation.

The Central Bank said yesterday that the Ministries of Finance, Trade, Petroleum Resources, and Ministry of Power and Energy are due to implement certain policy initiatives to contain price levels and the combined effect of the measures to be taken by these Ministries and others, are expected to bring down inflation to the targeted level by end 2007, without retarding the economic growth momentum.

According to the Central Bank, inflation, as measured by the point to point change in the Colombo Consumers’ Price Index (CCPI), has been on a rising trend since April 2006 reaching 19.3 per cent in December 2006 and increasing to 20. 5 per cent in January 2007. Such a trend has been a result of both the demand and supply side factors.

The annual average inflation has also increased from 13.7 per cent in December 2006 to 14.8 per cent in January 2007.

In view of these developments and having identified the necessity of further tightening the monetary policy in order to meet the inflationary pressures and to realise the monetary targets, the Monetary Board has decided to increase the Central Bank’s policy interest rates, the Repurchase and Reverse Repurchase rates by 50 basis points each.

Accordingly, the Repurchase rate and the Reverse Repurchase rate will be at 10.50 per cent and 12.00 per cent, respectively with effect from yesterday.

In addition, the Central Bank will continue to conduct aggressive open market operations to maintain market liquidity at an appropriate level to meet the pre-determined reserve money targets.

In order to ensure that the monetary and inflation targets are met, the Central Bank has established a monitoring mechanism for key variables in the fiscal, external and monetary sectors.

The Central Bank also said in its latest Monetary Policy Review that improved performance in the production of Agriculture, Industry and Services sectors has impacted beneficially on the continued growth momentum in the economy.

Recovery in tea and the fisheries industry together with the increased production in rubber and coconut has contributed to the overall growth in the Agriculture sector and this is expected to continue in 2007.

The Industrial sector is also expected to record a higher production, resulting from the increased demand arising from the major infrastructure development projects taking place, while the Services sector is expected to benefit particularly from developments in ports and telecommunications.