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Tuesday, February 08, 2011 - 6.48 GMT

Current monetary policy stance appropriate - CB


The Monetary Board of the Central Bank has decided that the current monetary policy stance is appropriate. Accordingly, the policy interest rates of the Central Bank will be maintained at their current levels, i.e., the Repurchase rate at 7.00 per cent and the Reverse Repurchase rate at 8.50 per cent.

In its Monetary Policy Review for this month (February) CBSL said that inflation has remained broadly stable in January 2011. Inflation was 6.8 per cent in January compared to 6.9 per cent in the previous month, while annual average inflation reached 6 per cent in January from 5.9 per cent in the previous month.

It also said that as in the previous months, the marginal increase in the index was largely driven by the food and non-alcoholic beverages category.

The increase in the price of food items during the month could be attributed to the adverse weather conditions. While the paddy output is expected to be affected due to recent floods, the availability of stocked-up paddy and the possibility of the increase in the extent of cultivation during the yala season are likely to ease any price pressures in 2011. The recent price surges in other food crops are expected to subside as the situation normalises in the coming months.

The global economy is set to recover faster in 2011 than previously expected. While the recovery is likely to improve earnings from exports further, the impact of the global recovery on the demand for key commodities could have an impact on prices.

The Central Bank said that appropriate measures will continue to be taken to contain the effect of any such developments. Certain recently implemented fiscal measures, such as the duty waiver granted for customs import duty on petrol and the reduction in taxes on importation of milk powder, would reduce the upward price pressures arising from adverse international commodity prices. Overall, the expected improvements in the fiscal sector are likely to ease pressure on domestic prices in the medium term.







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Last modified: February 08, 2011.

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