Alls Well

The overnight repurchase rate (repo rate) was kept at 7.0 percent and the reverse repurchase rate (reverse repo) at 8.50 percent, the bank said in a statement following its monthly Monetary Policy Meeting late Tuesday. rn

rnSecondary market bond rates have been jittery in the last few weeks after the President Chandrika Kumaratungas government opted not to go ahead with a Rs. 14 bn privatization programmme.rn

rnWeighted average call market rates have risen from 7.48 per cent at end April to 7.95 per cent at end May. rn

rnYield rates at the primary auctions for Treasury bills, on the other hand, have remained relatively stable, as market preference appears to be for short-term bills. rn

rnThis was reflected in last weeks Treasury bond auction, as the weighted average yield rates saw a rise of around 45-65 basis points from the previous auction held in February (for 2-year bonds). The bank rejected all the bids.rn

rnThe uneasy feeling was also felt in the foreign exchange markets, with the rupee hitting a century last week. After appreciating against the US dollar last year, the rupee has since fallen three percent todate, the Central Bank said.rn

rnThe rupee also depreciated against the sterling pound (6 per cent), the Japanese yen (0.8 per cent) and the Indian rupee (4 per cent), while appreciating against the euro (0.9 per cent). rn

rnForeign remittances continue to increase, but there have been delays in foreign inflows emanating from privatisation proceeds and official external financing.rn

rnldblquote This has exerted some upward pressure on the foreign exchange market, creating excessive volatility. The Central Banks intervention in the foreign exchange market during this period has helped to contain some of this volatility.
dblquote rn

rnGross official reserves, which stood at US$ 2,329 mn (4.2 months of imports) at end 2003, have fallen to US$ 2,242 mn (3.8 months of imports) at end April 2004. rn

rnHowever, the countrys total reserves (official reserves plus those of commercial banks) have risen from US$ 3,218 mn (5.8 months of imports) to US$ 3,324 mn (5.7 months of imports), during the same period. rn

rnA recent hike in oil prices, have also stoked inflationary pressures. Inflation as measured by the Colombo District Consumer Price Index has steadily declined over the past two-years.rn

rnBut the rate as at end May, remained static at 0.9 per cent as at end, indicating a halting of the declining trend in inflation.rn

rnldblquote Along with delayed price adjustments in the energy sector, inflation in 2004 is likely to be slightly higher, by about one percentage point, than initially expected,
dblquote the Bank warned.rn

rnBut the Bank said President Kumaratungas economic policy statement issued last Saturday lquote would no doubt help to dispel some of the uncertainties in the market since February, arising from the political changes. rn

rnldblquote The economy continues to be resilient and it would be desirable to maintain the momentum of economic growth.
dblquote rn

rnThe prolonged drought has continued to hurt the agricultural sector and has also significantly reduced hydropower generation. rn

rnThe share of thermal power generation has continued to rise, reducing the value addition in this sector. rn

rnIn the light of The bank is expecting overall growth to end at between 5-5.5 percent, lower than rn

rnConsequently, the annual growth rate is expected to be between 5 endash 5.5 per cent during 2004, which is marginally below the previously projected growth rate of 6 per cent. rn

rnldblquote Acceleration of rehabilitation and reconstruction of the war affected areas could improve on this figure.
dblquote rn

rnThe budget deficit is expected to hover around eight percent, though the bank is expecting a US$ 170 mn overall balance of payments surplus for 2004. rn

rnThe next regular statement on monetary policy is scheduled to be released on Wednesday July 14 2004.rn

rn

-LBO Newsdesk: LBOEmail@vanguardlanka.comrn

The Central Bank opted not to tinker with its key short-term rates Wednesday, though some of its counterparts in developed economies have raised rates to cool consumer spending in the backdrop of rising oil prices.