CB says economy’s ‘ganu-denu’ is ok

• Leaves policy rate unchanged for fourth consecutive month following April’s monetary review

With the Monetary Board having met prior to Avurudu for the April policy review meeting, the Central Bank indicated yesterday the measures taken so far were adequate to keep the economy ticking well.

“Monetary policy measures taken so far indicate that expected results are being realised, providing reasonable stimulus for a higher economic growth. At the same time, further deceleration of demand-driven inflation on a sustainable basis would provide space for further easing of monetary policy,” the Central Bank said in its announcement.

“Accordingly, the Monetary Board at its meeting held on 12 April 2013 was of the view that the current monetary policy stance was appropriate and decided to maintain the Repurchase rate and the Reverse Repurchase rate of the Central Bank at their current levels of 7.50% and 9.50%, respectively,” it added.

The bank also said as projected, year-on-year (y-o-y) inflation for March 2013 fell significantly, mainly due to the base effect and reflecting a continuing decline of food prices. Headline inflation (y-o-y), which remained at 9.4% on average for nine months declined to 7.5%, while core inflation (y-o-y) also declined to 6.8% in March from 7.4% in the previous month.

“Both headline and core inflation has remained at single digit levels for 50 consecutive months. Inflation is expected to remain at these benign levels supported by prudent demand management policies, although the proposed revisions to administered prices are likely to exert some upward pressure on price levels,” it added.

According to the Central Bank, the Balance of Payments (BOP), which turned around in 2012 recording a surplus of $ 151 million at end 2012, remains in surplus so far this year and is expected to improve further with increased foreign currency inflows.  During the year so far, the Central Bank has absorbed $ 560 million on a net basis, raising gross official reserves to $ 6.9 billion, which is equivalent to 4.5 months of imports.

The growth of broad money supply (M2b) decelerated to 17% in February 2013, its lowest level in 25 months. Within broad money, credit extended to the private sector increased by Rs. 18 billion in February, recording a y-o-y growth of 13.3%.

Meanwhile, credit obtained by the public sector amounted to Rs. 36.7 billion in February, but with expected adjustments to administratively determined prices and continued fiscal consolidation, the reliance of the public sector on bank financing is expected to decline in the coming months.

The resulting availability of funds, together with foreign capital raised by the banking sector in recent months would provide the necessary stimulus to strengthen private sector activity.

The Central Bank announcement also said the Sri Lankan economy grew at a robust rate of 6.4% in 2012 amidst significant challenges, registering a strong average growth rate of 7.5% for the period 2010-2012. This growth was supported by a resilient Agriculture sector, which grew amidst adverse weather conditions, and by sustained Industry sector growth. Although the tourism and finance sub-sectors grew rapidly, the Services sector recorded moderate growth due to low external trade activities in 2012.

The date for the release of the next regular statement on monetary policy would be announced in due course.