In its Monetary Policy Review for this month (January) CBSL said that the annual average inflation continued to decline, reaching 3.4 per cent by December 2009 while inflation, increased to 4.8 per cent in December 2009.

It also said the gradual increase in inflation, was expected, given the low base and the rebounding of international commodity prices along with the recovery in the global economy. Nevertheless, projections of inflation for 2010 indicate benign inflationary pressures, enabling inflation to be in single digits by year end.

The Central Bank eased its monetary policy stance during 2009 in view of the favourable outlook for inflation. Though some volatility has been observed in the short term money market rates in recent weeks, market interest rates have declined to lower levels by end 2009 in response to the monetary policy measures taken by the Central Bank. As a result, credit to the private sector, which contracted continuously during the period from January to October 2009, indicated a positive turnaround in nominal terms in November. It is expected that this development would be further strengthened along with activity in the domestic economy picking up in the period ahead, states the CBSL.