The Central Bank (CB) announced that market interest rates declined to lower levels by the end of 2009 in response to monetary policy measures taken by the Bank, resulting in increased credit to the private sector.

In the latest Monetary Policy Review released this week, the CB stated some volatility has been observed in the short term money market rates in recent weeks but that credit to the private sector, which contracted continuously during January to October 2009, indicated a positive turnaround in nominal terms in November. According to the CB, it is expected that this development would be further strengthened along with activity in the domestic economy picking up in the period ahead.

Annual average inflation continued to decline, reaching 3.4% by December 2009 although year-on-year inflation measured through the Colombo Consumers' Price Index (CCPI) increased to 4.8% in December 2009.

The CB stated that a gradual increase in inflation on a year-on-year basis was expected, given the low base and the rebounding of international commodity prices along with the recovery in the global economy. Nevertheless projections of inflation for 2010 indicate benign inflationary pressures, enabling inflation to be in single digits by year end.

The Monetary Board of the CB also decided to maintain the policy interest rates of the CB at their existing levels at a meeting this Monday.