Inflation to drop further
In December 2014, headline inflation on a year-on-year basis was at
2.1 percent compared to 1.5 percent in the previous month. Core
inflation, which directly measures underlying price pressures, continued
to remain between 3-4 percent while decelerating to 3.2 percent in
December 2014 from 3.6 percent in November.
While low inflation is mainly attributable to contained demand
pressure in the economy, it was also supported by favourable supply side
developments, particularly the downward revisions in domestic energy
prices in the last few months of 2014.
Subdued demand pressure and inflation expectations in the economy,
the favourable impact of further reductions in fuel prices in January
2015, and the anticipated reduction of administered prices of other key
commodities announced in the Government's '100-Day Program' are expected
to reduce inflation further in the months ahead.
Supported by historically low market interest rates in nominal terms,
credit obtained by the private sector from commercial banks continued to
expand at a healthy pace.
Credit flows to the private sector increased by 6.5 percent on a
year-on-year basis in November 2014,while in absolute terms, the
increase was Rs. 57.8 billion during the month, bringing the cumulative
credit flows to the private sector to Rs. 147.4 billion during
Credit granted against immovable property, plant and machinery,
personal guarantees and promissory notes, and other securities and
unsecured loans increased substantially in November 2014.
It is hoped that the increasing trend in private sector credit
disbursements can be sustained throughout 2015 providing the necessary
impetus to the growth momentum of the economy.
Looking at the real sector, the Sri Lankan economy grew by 7.7
percent during the third quarter of 2014 supported by strong performance
in the Industry and the Services Sectors.
The Industry sector, which posted a growth of 12.4 percent in the
first half of 2014, maintained its growth momentum in the third quarter
recording an expansion of 12.6 percent.
The performance in the Industry sector was supported by the
significant growth observed in the construction, manufacturing and
mining and quarrying sub sectors.
The Services sector grew by 7.0 percent while the Agriculture sector,
which was hampered by weather related disruptions, contracted by 2.0
With appropriate macroeconomic policies to boost domestic and foreign
investor confidence, the Sri Lankan economy is expected to record a
robust performance in the period ahead.
The Monetary Board has decided that the present monetary policy
stance is appropriate, and accordingly, decided to maintain the Standing
Deposit Facility Rate (SDFR).