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| Thursday, 12 February 2004 |
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Current monetary policy stance appropriate - Central Bank The Monetary Board of the Central Bank at its monthly review of monetary policy concluded that the current monetary policy stance of the Bank was appropriate given the economic developments and that the policy rates would be kept unchanged at their present levels, i.e., the Repo rate at 7.00 per cent per annum and the Reverse Repo rate at 8.50 per cent per annum. The following provides an assessment of some of the factors that were taken into consideration in arriving at this decision. Real sector The economy is projected to grow by 6 per cent in 2004 given a continuation of the growth trends witnessed in each of the major sectors in 2003. The stronger than expected recovery in some major trading partner economies, such as the US, could provide a stimulus for exports, while the overall recovery in the global economy could be expected to boost tourism. However, certain areas of concern still remain. A prolonged drought could adversely affect agricultural output and constrain generation of low-cost hydro electricity. Given the accommodative monetary policy stance adopted, a sustained rise in private sector credit as witnessed in the last few months of 2003, as well as the speedy implementation of the donor financed public investment program would further enhance the growth prospects in the economy. Consumer prices Consumer price inflation has continued to decelerate. The most recent data available for the Sri Lanka Consumers' Price Index (SLCPI), which captures islandwide price movements, shows a decline in the 12-month average from 3.6 per cent in October to 3.1 per cent in November 2003. The same trend was seen in the other consumer price indices with the 12-month average of the Colombo Consumers' Price Index declining from 6.3 per cent in December 2003 to 5.2 per cent in January 2004 and the Colombo District Consumer Price Index from 2.1 per cent to 1.6 per cent. The potential for higher inflationary pressures in the future still remains with prices of some key commodities such as petroleum, wheat and rice rising international markets, and possible increases in costs consequent to wage increases and upward revision of power tariffs. However, the recently announced measures to contain price increases may offset some of these upward pressures. |
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