Rates increased, inflation still a concern

Interest rates were raised by 0.25%, at last Monetary Review, signalling that the Central Bank is cautiously watching the current inflationary pressures in the country. The CB is working towards curbing the excess liquidity through Open Market Operations (OMO) more aggressively, mopping up excess liquidity both on a long-term basis and on an overnight basis. During April 01 - May 10, 2005, a sum of Rs.19 billion was permanently sterilised by the CB through its outright sales of Treasury Bills in the secondary market.

This was further strengthened by a planned program of non-investing in a significant portion of maturing Treasury Bills held by the CB during the same period.

As a result, Central Bank holdings of Treasury Bills have declined from Rs.75 billion as at end December 2004 to Rs.52 billion by 10 May 2005.

Correspondingly, excess liquidity and net domestic assets of the CB, especially net credit to the government too declined. Such moves are essential to control the current inflationary pressures, which could get further worsened due to the recent hike in domestic fuel prices.