The outlook for Sri Lanka’s economy remains positive with the economy continuing along the high growth trajectory.
In its Monetary Policy Review for this month (November) CBSL said that Inflation decreased for the third consecutive month in October 2011 declining substantially from 6.4 per cent in September to 5.1 per cent in October 2011. Annual average inflation decreased from 7.2 per cent in September to 7.1 per cent in October 2011.
Further, core inflation declined from 6.9 per cent in September to 5.6 per cent in October 2011, signifying the absence of demand-driven inflationary pressures. Inflation is expected to continue to decrease during the rest of the year, benefitting from the improvements in domestic supply conditions, arising from the high growth momentum of the economy, the bank said.
The fuel price adjustment carried out at end October, and likely corresponding adjustments of costs relating to public and goods transportation, could cause a marginal upward movement in prices. However, going forward, adjusting domestic fuel prices to reflect persistently high international market prices would minimize the adverse impact on future inflation and the economy through reduced price distortions, the Bank added.
Based on provisional data, earnings from exports as well as expenditure on imports grew further in September 2011. The growth of the latter was mainly due to higher imports of intermediate and investment goods, which included project related imports funded through financial inflows to the government that amounted to US dollars 1,460 million (excluding proceeds from the international sovereign bond issue in July 2011) during the first three quarters of the year, the Bank further said.
Even though the deficit in the trade account has expanded, higher earnings from tourism, increased worker remittances as well as other inflows to the services account helped contain the impact of the trade deficit on the current account balance.
In the meantime, during the past month, two commercial banks have made arrangements to infuse fresh capital to the value of US dollars 250 million from foreign sources, while approval has been granted to 12 private companies to raise debt capital of approximately US dollars 63 million from foreign sources during the past two months in addition to foreign debt capital amounting to approximately US dollars 197 million obtained by 14 corporate up to mid-September 2011.
Considering the above, the Monetary Board decided to maintain the policy interest rates of the Central Bank and the Statutory Reserve Ratio (SRR) applicable to all rupee deposit liabilities of commercial banks at their current levels, the Central Bank stated.
Accordingly, the Bank’s Repurchase rate and the Reverse Repurchase rate will be 7.00 per cent and 8.50 per cent, respectively, while the SRR will be at 8.00 per cent, the Bank added.