The monetary policy stance of the Central Bank was gradually eased during 2009 in view of the decline in inflationary pressures and the slowdown in economic activity. Several favourable developments were observed in response to the monetary policy measures taken by the Central Bank.

Inflation has continued to decline, for the fourth consecutive month, reaching 4.8 per cent in June 2010, while annual average inflation reached 3.9 per cent in June.

The Central Bank has also decided to revise the monetary programme for 2010, and accordingly, the targets for reserve money and broad money, which were published in the “Road Map: Monetary and Financial Sector Policies for 2010 and beyond”, on account of the subsequent developments in the economy.

The key factors underlying this revision are an expected increase in the growth in nominal GDP and the inclusion of information on the fiscal sector from Budget 2010, which was presented to Parliament in June 2010.

Broad money is expected to grow at a rate commensurate with the revised nominal GDP growth of 14.5 per cent. The budget for 2010 envisages that the deficit would be contained at 8 per cent in 2010, with further reductions expected in 2011 and beyond.

Several developments within the monetary aggregates, which were observed during the first half of the year, have also underscored the need for a revision. Expansion in reserve money was higher than expected, particularly during the first quarter of 2010, partly due to increased demand for currency with the end to the conflict.