CB happy with economy

Wednesday, 20 October 2010 01:15 - - {{hitsCtrl.values.hits}}

After rate cut directive last month, leaves policy rates unchanged in October review

The Central Bank yesterday implied it was happy with the state of the economy both on account of its measures as well as macro developments.

“Economic growth remains robust and broad based with all sectors contributing to the expansion of output,” the Central Bank said following the October Monetary Policy Review.

It said credit flows continue to rebound with credit to the private sector from commercial banks growing on a year on year basis by 12.8 per cent in August 2010, further reinforcing the growth prospects. At the same time, year on year growth in broad money remains moderate at 13.9 per cent in August.

The successful issue of the 10-year international sovereign bond on 27 September at a comparatively lower coupon rate of 6.25 per cent and attracting an order book of more than 6 times the value of the bond reflects the improved investor confidence in the economy. Gross international reserves further increased with the receipt of the fifth tranche of the IMF-SBA facility and the proceeds of the international sovereign bond.

Inflation, as measured by the year on year change in the Colombo Consumers’ Price Index (2002=100) increased in September to 5.8 per cent from 5 per cent in August. However, inflation is expected to remain subdued over the coming months.

“Taking into consideration these current and expected developments in the economy, the Monetary Board, at its meeting held on 18 October 2010, has decided to maintain the policy interest rates of the Central Bank unchanged. Accordingly, the Repurchase rate and the Reverse Repurchase rate of the Central Bank would remain at 7.25 per cent and 9.00 per cent, respectively,” the CB statement said.

In the September policy review too the rates were kept unchanged though subsequently the Central Bank issued a directive or a request to all banks to reduce lending rates by end October.

The release of the next regular statement on monetary policy will be on 16 November 2010.