Decline in food prices eases inflation - CBSL
The favourable developments that were witnessed last year continued
into 2011, especially in the Industry and Services sectors of the
economy. In the agriculture sector, although the Maha harvest was
affected by the floods, the expected improvement in paddy harvest in the
2011 Yala season would serve to help the continuation of stable paddy
prices throughout the year.
With the continuous supply of vegetables and other field crops after
the floods, domestic food prices have started to decline, thereby easing
pressure on inflation, the Central Bank said on Tuesday. In the
international market, prices of cereals and sugar declined marginally
from its peak early this year, while prices of most other commodities
remain largely unchanged.
Prices of Brent crude oil have been around US dollars 112 per barrel,
on average, the Bank said.
As expected, inflation, as measured by the year-on-year change in the
Colombo Consumers’ Price Index (CCPI) (2002=100) declined in May 2011 to
8.8 percent from 9.8 percent in the previous month.
The annual average inflation showed a marginal increase of 0.3
percent to 6.9 percent in May, while the monthly change in the Index was
0.6 percent. Both exports and imports continued to expand while earnings
from tourism, workers’ remittances, and the inflows to the capital and
financial account have resulted in the balance of payments recording a
surplus in the first quarter of the year.
The provisional estimates show that the gross official reserves
(without ACU receipts) have increased to US dollars 7,055 million by 09
June 2011 from US dollars 6,610 million recorded at end December 2010.
So far during the year, in the domestic foreign exchange market, the
rupee has appreciated by 1.34 percent against the US dollar, 0.88
percent against the Indian rupee, and 0.14 percent against the Japanese
yen, while depreciating against the Euro by 6.06 percent, and by 3.59
percent against the pound sterling.
The fiscal consolidation process is expected to continue. Total
revenue during the first four months increased by 18.4 percent compared
to the corresponding period of 2010, while total expenditure and net
lending increased only by 11.6 percent during the same period.
The increase in the amount of credit disbursed decelerated to Rs.26
billion, from around Rs. 33-35 billion per month since August 2010.
Meanwhile, credit obtained by public corporations declined by about Rs.
27 billion during the first four months of the year. With recent
monetary and fiscal policy measures, including the increase in the
Statutory Reserve Requirement (SRR) and the increase in Excise duties,
and the expected continuation of fiscal consolidation, broad money
supply is expected to be consistent with macroeconomic developments.
The Monetary Board,at its meeting held on June 13, has decided to
maintain the policy interest rates of the Central Bank at their current
levels. Accordingly, the Repurchase rate and the Reverse Repurchase rate
of the Central Bank would remain at 7.00 percent and 8.50 percent,