Credit to public institutions to ease in 2008

The Central Bank is to announce the “Road Map for Monetary and Financial Sector Policies for 2008 and beyond” on January 2 along with the advance release calendar of monetary policy announcements for 2008, the bank said this week.

In its Monetary Policy Statement for December, the bank said credit to public corporations, particularly to the Ceylon Petroleum Corporation (CPC) showed some decline in October while a further decline is expected during 2008 with improvements to the cash flow of the CPC due to receipt of the Iranian credit facility.

The decline in domestic credit would facilitate to reduce the growth in money supply and hence the demand driven inflationary pressure, it said.

The economy is estimated to have expanded by 7.0 per cent during the third quarter of the year, subsequent to registering a growth of 6.2 per cent during the first half. This expansion was supported by the healthy performance in the industry and services sectors and the recovery in the agriculture sector.

Externally, the bank said, with the increase in the average price of tea exports, agricultural exports strengthened further given higher industrial and mineral exports. The balance of payments is estimated to have recorded a surplus of US$696 million while gross official reserves stood at US$3,226 million by end October 2007.

The appreciation of the rupee vis-à-vis the US dollar following the international bond issue was further upheld by expectations of further inflows.

Inflation, as measured by the point-to-point change in the New Colombo Consumers’ Price Index - CCPI (N) was 19.3 per cent in November while the annual average inflation was 15.4 per cent as at November 2007. The increases in prices of imported commodities such as milk powder, wheat and petroleum contributed to more than 30 per cent of the inflation during the second half of 2007.