Domestic credit conditions improve

Monetary Policy stays intact:

The recent monetary easing by the Central Bank has helped improve domestic credit conditions, and thereby supported the sustained recovery in domestic economic activity, the regular statement on monetary policy said yesterday.

The Central Bank

The external sector too has recorded encouraging performance in recent months. While domestic economic activity has rebounded strongly this year, it is expected that this growth momentum would continue into the next year too, supported by the recovery in the global economy.

Growth in broad money has remained within targeted levels, thus far, despite the pick-up in credit granted to the private sector in recent months, due to a decline in both net foreign assets of the banking system as well as credit obtained by the Government from the banking system.

While it is expected that credit flows to the economy will move in tandem with the level of economic activity, the Bank will take appropriate policy measures if it observes any signs of a build up of demand pressures in the economy, the statement said.

Driven mainly by supply side constraints in respect of several commodities, year-on-year inflation increased to seven percent by end November 2010. Food and non-alcoholic beverages accounted for over seventy percent of this increase.

Nevertheless, inflation, on an annual average basis, has remained around mid-single-digit levels in both 2009 and 2010.

Taking into consideration the recent economic developments as well as expected economic developments, the Monetary Board, at its meeting held on December 13, 2010, decided to maintain the policy interest rates of the Central Bank unchanged at their current levels.

Accordingly, the Repurchase rate and the Reverse Repurchase rate of the Central Bank will remain at 7.25 percent and 9 percent, respectively, the statement also said.