Growth momentum, resilience to yield high growth in 2007

All three sectors of the economy grew at healthy rates resulting in the economy recording an overall growth of 7.4 per cent in 2006. The continued growth momentum together with the resilience in the economy is expected to yield a high growth in 2007 as well.

The external sector continued to perform well during the first two months of 2007. Cumulative exports in the first two months increased by around 10 per cent while imports grew by 7 per cent.

The Balance of Payments (BOP) recorded a surplus of US dollars 53 million up to February 2007 benefiting from the narrowed trade deficit and the inflows to the government. The gross official reserves of the country reached US dollars 2,578 million by end February 2007.

The tight monetary policy measures pursued by the Central Bank were instrumental in the reserve money being well within the first quarter reserve money ceiling. Growth in broad money also decelerated to the range of 16.0 - 16.5 per cent from its higher levels of around 20 per cent observed in 2006.

As per the Road Map for Monetary and Financial Sector Policies in 2007 and beyond issued on January 2, 2007, the point to point change in the Colombo Consumers' Price Index (CCPI) was estimated to be above 21 per cent in March 2007.

However, as a result of continued tight monetary policy measures and other measures, the point to point inflation decelerated to 19.5 per cent. The decelerating trend is expected to continue in the coming months. In these circumstances, the Monetary Board decided to continue with the current monetary policy stance.