Bank continues current rates
Monetary Board of the Central Bank said last week that it had reviewed
the Bank's monetary policy stance and was of the view that given
recent economic developments and conditions in financial markets,
the current monetary policy stance of the Bank would be left unchanged
and that the policy rates would be maintained at its present levels.
Bank said the following provides an assessment of the factors that
were taken into consideration in arriving at this decision:
on realised data and available information, the real sector in 2003,
which has been boosted by the recovery in exports, higher private
consumption and investment, can be expected to achieve the level
of growth of 5.5 per cent projected at the beginning of 2003. The
growth momentum is expected to continue in 2004, mainly driven by
the external sector, as the recovery in the major economies, particularly
the US, becomes more firmly established. The prevailing drought
and the current uncertainty in the market may have some dampening
impact on the real sector. However, an early turnaround in these
conditions could be expected to restore the growth momentum.
sustained downward movement in inflation has continued in 2004 with
the annual average change of all consumer price indices declining
further. The Sri Lanka Consumer Price Index declined from 2.6 per
cent at end 2003 to 1.9 per cent at end January 2004.
Colombo Consumers' Price Index (CCPI) decreased from 5.2 per cent
in January 2004 to 4.4 per cent in February and the Colombo District
Consumer Price Index (CDCPI) from 1.6 per cent in January 2004 to
1.2 per cent in February.
monthly price movements in the CCPI and the CDCPI in February, however,
indicate mixed movements, although the magnitude has been small,
indicating relatively stable prices. Current trends in inflation
seem to suggest that the inflation forecast for 2004 in the monetary
programme continues to be valid for policy purposes.
required by the Fiscal Management (Responsibility) Act 2002, the
Minister of Finance and the Secretary to the Treasury presented
a Pre-election Budgetary Position Report. According to the revised
estimates given in the report, the budget deficit is expected to
increase by about 0.5 percentage points of GDP to 7.3 per cent of
GDP in 2004. The increase in the deficit is on account of lower
taxes and increases in current expenditure, although part of the
increase in current expenditure will be offset by lower capital
expenditure as a result of lower disbursement of donor assistance.
The net effect of these revisions will be an increase in net domestic
borrowing to Rs.87 billion. However, given that there is no further
increase in the fiscal deficit and the projected resources in the
domestic non-bank sector (over Rs.105 billion) are higher than the
borrowing requirement, this increase in the borrowing requirement
is not expected to exert excessive pressure in the domestic market.
growth in monetary aggregates moderated slightly in January 2004
to 15.1 per cent from 15.3 per cent at end 2003. The domestic rupee
market continues to remain in liquid, although the level of excess
liquidity declined to around Rs.5-6 billion in early March 2004.
Currency demand has continued to rise and is expected to increase
further until April, due to the forthcoming elections and the festive
season. Although this is expected to increase reserve money above
the normal level temporarily, reserve money is expected to return
to the projected path by the end of April, with the return of currency
demand to normal levels.
interest rates have shown mixed movements. At the very short end
of the market call market rates declined from the levels seen in
January and fluctuated within a narrower range. However, yield rates
on government securities across all maturities moved upward, although
they have once again stabilised. The average weighted prime lending
rate (AWPR) and the average weighted deposit rate (AWDR) continue
to fall, albeit slowly.
exchange rate has experienced greater variability since the announcement
of the dissolution of parliament on February 7. Negative market
sentiment in addition to the usual seasonal import demand for dollars,
have been cited as reasons for the wide fluctuations in the exchange
rate. Although the rupee dollar rate depreciated at a relatively
higher rate after February 7, it has shown greater stability at
end February and in early March.
the current economic developments and conditions in the financial
market, the Central Bank has decided to leave the current monetary
policy stance unchanged. The Bank will continue to monitor market
developments carefully and revise its monetary policy stance as
appropriate. The next regular statement on monetary policy would
be made on April 16.