Inflation easing, says Central Bank

Inflation has begun easing since January 2007 as expected, even while accommodating several administered price revisions, the Central Bank said last week. Inflation, as measured by the point to point change in the Colombo Consumers’ Price Index (CCPI) decelerated to 16.3 percent in April compared with 19.5 percent in March 2007, responding to the tight monetary policy measures.

Thus, the year end inflation on a point to point basis is expected to fall to a single digit level, it said. Both external and monetary sectors continued to perform better than expected thus far during 2007. Within the external sector, exports recorded a significant increase of 17.7 per cent during March 2007 benefiting from higher exports of textiles and garments, other major industrial exports and agricultural products.

The overall exports during the first quarter grew by 13 per cent. Imports declined by 2.4 per cent in March, particularly due to lower imports of petroleum. As such, imports grew by only 3.2 per cent during the first quarter. With the favourable impact generated by these developments, as well as higher worker remittances and inflows to the government by way of loans and sale of Treasury bonds to non-residents, the balance of payments is estimated to have recorded a surplus of $292 million by end April. The gross official reserves are estimated to be around $2,820 million by end April 2007.

The Bank said that with the continued tight monetary policy stance it was able to bring down the high growth in monetary aggregates observed in the previous year. The reserve money target for the first quarter was achieved within a comfortable margin.

Despite the increase in reserve money during the month of April arising from the heightened demand for currency in view of the festive season, the Bank was able to meet the indicative target for end April, through continued absorption of excess liquidity on both permanent as well as overnight basis.

Currently, reserve money is well within the target and interest rates have reached a stable level. It is expected that the reserve money target set for June could also be achieved comfortably, it said.