The Central Bank (CBSL) has decided to maintain its policy interest rates at their existing levels.

In its Monetary Policy Review for this month (March) CBSL said that Inflation, which remained between 5-7 per cent during the period since July 2010, increased to 7.8 per cent in February 2011, while annual average inflation increased marginally from 6.0 per cent in January to 6.1 per cent in February 2011.

This anticipated increase was due to the increase in prices of food items, especially vegetables, following short-term supply disruptions caused by floods in major food producing areas.

While relatively large stocks of many varieties of vegetables have started reaching the market since the last week of February from areas where crop damages were insignificant, the supply from affected areas is also expected to improve towards April and May. The impact on rice prices is also likely to remain low during the year with stocks being released to the market and the expected increase in the extent of cultivation during the yala season, resulting in higher output, the bank said.

Continuous increase in the prices of key international commodities particularly that of crude oil, remains a concern. The recent geo-political disturbances in some Middle-Eastern countries have pushed global crude oil prices over the levels previously projected by international agencies.

The possible impact of these external price pressures on macroeconomic stability is closely monitored and appropriate measures will be taken if clear signs of persistence of these adverse developments emerge, the Bank further stated.