Core inflation up from Jan-Aug

Headline inflation, as measured by the Colombo Consumers' Price Index (CCPI, 2006/2007=100), increased to 1.7 percent on a year-on-year basis in October 2015 from a negative 0.3 percent in September 2015 mainly reflecting the dissipation of the impact of the downward revision of administered prices during the latter part of 2014.

On an annual average basis, headline inflation remained unchanged at 0.7 percent in October 2015. However, reflecting the firming up of aggregate demand conditions in the economy, core inflation continued to increase during the past eight months reaching 4.4 percent in October 2015, on a year-on-year basis, compared to the 3.2 percent recorded at end 2014.

The Department of Census and Statistics (DCS) released a National Consumer Price Index (NCPI, 2013=100) on November 23 covering price movements in all provinces in the country.

The movements of the NCPI are broadly in line with the movements in CCPI, which only cover the urban areas of the Colombo district. Headline inflation as per the year-on-year change in NCPI was at 3.0 percent for October 2015.

In the monetary sector, the year-on-year growth of credit granted to the private sector by commercial banks increased further to 22.2 percent in September 2015 from 21.3 percent in the previous month. As per the Quarterly Survey of Commercial Banks' Loans and Advances to the private sector, the Services and Industry sectors witnessed the highest intake of credit, recording year on year increases of 40.6 percent and 24.5 percent.

Broad money (M2b) grew 16.0 percent (y-o-y) in September 2015 compared to 16.8 percent in the previous month driven by the expansion of credit extended to both private and public sectors by the banking system.

With regard to the external sector, the decline in expenditure on imports in September 2015 was greater than the decline in earnings from exports, narrowing the deficit in the trade account by 4.1 percent to US $ 733 million.

However, on a cumulative basis, the trade deficit widened during the first nine months of the year by 3.8 percent to US $ 6,145 million, driven by the continued increase in non-oil imports. Recent policy measures taken by the Central Bank and the government coupled with policy measures in the Budget for 2016 are expected to curtail certain imports, particularly motor vehicles, thereby easing the pressure on the external sector. Meanwhile, earnings from tourism in the first ten months of 2015 are estimated to have grown by 17.9 percent, strengthening the external current account, while workers' remittances recorded a moderate growth of 1.8 percent in the first nine months of the year. Gross official reserves, which stood at US $ 6.8 billion at end September 2015, are estimated to have strengthened to around US $ 8.0 billion by November 3, 2015 with the receipts from the ninth International Sovereign Bond issuance for US $ 1.5 billion.

Meanwhile, the Sri Lanka rupee had depreciated by 8.1 percent against the US $ so far in 2015.

The Monetary Board will maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.00 percent and 7.50 percent. Monetary policy decision: Policy rates unchanged. Standing Deposit Facility Rate (SDFR) 6.00%, Standing Lending Facility Rate (SLFR) 7.50%, Statutory Reserve Ratio (SRR) 6.00%.