External trade sees recovery

CB holds policy interest rates steady:

The Monetary Board has decided to maintain policy interest rates of the Central Bank unchanged at their current levels due to the improved economic activities in the country.

Accordingly, the Repurchase rate and the Reverse Repurchase rate of the Central Bank would remain at 7.25 percent and 9.00 percent, respectively.

Recent domestic macroeconomic trends have been encouraging. Economic activity expanded significantly in real terms in the first two quarters of the year. External trade has recovered, and earnings from exports have recorded an increase for the first three quarters of the year, the Central Bank said in a statement yesterday.

The domestic foreign exchange market too has continued to remain stable. Meanwhile, international reserves of the country still continued to be at above targeted levels, which situation is likely to continue into the forthcoming period, notwithstanding the policy measures being introduced to deal with this situation. Improved credit conditions have increased demand for credit.

Credit flows to the private sector have shown an upward trend this year, with the year-on-year increase in credit granted by commercial banks to the private sector reaching 15.5 percent by September.

However, broad money growth remains compatible with the targeted path, with year-on-year growth in broad money hovering around 13 to 14 percent during the quarter ending September.

By October this year, inflation, as per the Colombo Consumers’ Price Index (base=2002) was 6.6 percent, year-on-year, while annual average inflation was 5.4 percent.

Supply-side constraints, both internationally and domestically, which drove up prices of wheat and wheat based products, coconuts, and a few other commodities, contributed mainly to the increases in inflation in recent months. Nevertheless, inflation is expected to remain subdued at mid-single digits, on an annual average basis, by end year.