Monetary policy to continue

The Monetary Board, at its meeting held on February 15 has decided that its current monetary policy stance will be maintained to facilitate the recovery in domestic economic activity, which is under way.

The Monetary Board will continue to monitor economic developments and prospects, with a view to reviewing its policy stance, the Central Bank said yesterday.

The annual average inflation declined to 3.1 per cent by January 2010, although inflation, as measured by the year-on-year increase in the Colombo Consumers' Price Index (base=2002) increased to 6.5 per cent in January 2010 from 4.8 percent at end 2009.

The gradual increase in year-on-year inflation mainly reflects the dissipation of the base effect as well the recovery in commodity prices globally.

The Central Bank has already relaxed its monetary policy stance in the course of the year 2009 in order to support economic activity. This was made possible by the deceleration in inflation and the favourable outlook for inflation that prevailed. In response, market interest rates are adjusting downwards.

Credit obtained by the private sector, which was negatively impacted by the slowdown in economic activity domestically as well as globally has been increasing in nominal terms towards the end of the year 2009.