The Monetary Board of the Central Bank (CB) decided to maintain the policy interest rates of the Central Bank unchanged.

Inflation, as measured by the year on year change in the Colombo Consumers’ Price Index declined to 6.3 per cent in March 2010, while the annual average inflation increased marginally to 3.2 per cent compared to the previous month, stated the CB.

The decline in year on year inflation is largely attributable to the reduction in the price of several key food items. The continued improvement in supply conditions is expected to subdue inflationary pressures.

The expansion in monetary aggregates has begun to decelerate. Growth in broad money supply, which picked up towards end 2009, has declined to 17.4 per cent by February 2010. The declining trend in credit to the private sector bottomed out in October 2009 and has since been growing in absolute terms, reflecting the gradual recovery in economic activity.

This has been aided by the recovery in the global economy, the easing of the monetary policy stance as well as increased investor confidence. Growth in the domestic economy is expected to gain momentum during the year, supported by these favourable conditions.

Reserve money has been expanding at a higher rate since the last quarter of 2009. The expansion has been mainly due to the increase in currency in circulation on account of the two elections held during the early part of 2010 coupled with the seasonal demand for currency.

The Bank is also monitoring the developments in the money market as excess rupee liquidity continues to remain high. However, reserve money has begun to contract following the festive period.

The Bank will continue to closely monitor the movements in monetary aggregates and take appropriate action if necessary.