Stable Mode

The Central Bank on Tuesday opted not to cut its key benchmark interest rates, buoyed by strong economic recovery and an influx of foreign investments.
In May, the bank lowered the overnight repurchase rate or repo rate by 75 basis points to 7.5 percent, while the reverse repurchase rate or reverse repo was reduced by 75 basis points to 9.5 percent. rn

rnFollowing the rate cut in August, the bank said call market rates have fallen by around 75 basis points and the average weighted prime lending rate by about 60 basis points. rn

rnThe yield on government securities, which had partly factored in an expected reduction in Central Bank
quote s rates, fell by about 10 to 20 basis points, to cover the balance in the required adjustments. rn

rnSeveral banks have indicated a reduction of 100-200 basis points in their lending rates and 25-75 basis points in deposit rates. Commercial bank rates, however, are still adjusting downward, the bank said. rn

rnThe bank said output of major agriculture products like paddy and rubber have improved significantly with paddy production during the 2002/3 Maha season reaching a new peak.rn

rnTea production, which suffered a temporary setback due to floods, is recovering, while the output of coconut has also increased. rn

rnldblquote The improvements in domestic supply conditions, reduced pressure from import prices, and the cautious monetary policy stance, which prevented the emergence of demand pull inflation, have been instrumental in further moderating inflation in 2003,
dblquote the bank said. rn

rnThe 12-month moving average of the Colombo District Consumer Price Index (CDCPI) decreased further from 3.9 per cent in July to 3.5 per cent in August, while the Colombo Consumers
quote Price Index (CCPI) declined from 8.3 percent to 7.9 per cent in August. rn

rnExternal sector performance has also improved. Cumulative exports for 2003 showed a 18 percent growth in US dollar terms in the first six months of 2003, while cumulative imports grew by 7 percent. rn

rnThe momentum helped narrow the trade deficit to US$ 700 mn in the first six months 2003 from US$ 863 mn in the same period in 2002. rn

rnIncreased inflows in the services account, particularly from tourism and port services, increased remittances and capital inflows in the form of portfolio inflows, investments and loans have supported the reduction in the trade deficit, to lead to a substantial surplus in the overall balance of payments. rn

rnThe move helped the Central Bank to buy US$ 257 mn from the market in the first eight months of 2003. rn

rnThe country
quote s gross official reserves have increased to around US$ 1.939 bn by end July, equivalent to around 3.7 months of imports. rn

rnThe total gross international reserves increased to US$ 2.776 bn, which helps cover around 5.3 months of imports, as at end July 2003. rn

rnAlong with the increase in inflows, the foreign exchange market has remained stable. rn

rnThe rupee has appreciated slightly against the US dollar and hit a 12 month high on Monday.rn

rnBut the bank said a stronger rupee has not weakened Sri Lanka
quote s external competitiveness, partly due to declining inflation and the depreciation of the rupee against other major currencies. rn

rnThe monetary growth during January endash July 2003, has averaged around 13 per cent, which is broadly in line with the projections for 2003. rn

rnNet Foreign Assets (NFA) of the banking system have increased, while the government has reduced its dependence on the banking sector by around Rs.18 bn during the first seven months. rn

rnThe receipt of foreign loans by the government and improved cash management by the General Treasury enabled the government to reduce its liabilities to the banking sector. rn

rnCredit to public corporations also declined to around Rs. 7 bn. rn

rnThe bank said private sector growth is picking up, showing a point-to-point 14 percent growth in July, up from 13.4 percent in June 2003 and 7.6 per cent in July 2002. rn

rnPrivate sector demand came from a rise in credit extended for export and import finance and industrial, housing and consumption purposes. rn

rnThe level of reserve money increased from Rs. 131 bn at end July 2003 to Rs. 135 bn at end August 2003. rn

rnThe active open market operations of the Central Bank have enabled the reserve money expansion to be kept within the targeted level.rn

rnThe bank also predicted that foreign direct investment, could hit a record US$ 350 mn this year, up from US$ 242 mn in 2002.rn

rnCentral Bank
quote s next regular monetary policy announcement is due on October 16.rn