Inflation declines in March
April Monetary Policy Review :
Inflation, as measured by the year on year change in the Colombo
Consumers' Price Index has declined to 6.3 percent in March.
The annual average inflation increased marginally to 3.2 per cent
compared to the previous month.
The decline in year on year inflation is largely attributable to the
reduction in the price of several key food items. The continued
improvement in supply conditions is expected to subdue inflationary
pressures, the Central Bank said.
The Monetary Board, at its meeting held on April 21, has decided to
maintain policy interest rates of the Central Bank unchanged.
The expansion in monetary aggregates has begun to decelerate. Growth
in broad money supply, which picked up towards end 2009, has declined to
17.4 per cent by February 2010.
The declining trend in credit to the private sector bottomed out in
October 2009 and has since been growing in absolute terms, reflecting
the gradual recovery in economic activity. This has been aided by the
recovery in the global economy, the easing of the monetary policy stance
as well as increased investor confidence.
Growth in the domestic economy is expected to gain momentum during
the year, supported by these favourable conditions.
Reserve money has been expanding at a higher rate since the last
quarter of 2009. The expansion has been mainly due to the increase in
currency in circulation on account of the two elections held during the
early part of 2010 coupled with the seasonal demand for currency.
The Bank is also monitoring the developments in the money market as
excess rupee liquidity continues to remain high.
However, reserve money has begun to contract following the festive
period. The Bank will continue to closely monitor the movements in
monetary aggregates and take appropriate action if necessary. |