Review of monetary policy - December 2016

According to provisional estimates by the Department of Census and Statistics (DCS), the economy of Sri Lanka is estimated to have grown by 4.1 per cent in the third quarter of 2016, compared with an increase of 5.6 per cent. In the corresponding period last year. Service activities increased by 4.7 per cent, while industry activity rose sharply by 6.8 per cent in the third quarter of 2016. However, agriculture-related activities continued to Showing a contraction of 1.9 per cent in the second consecutive quarter, the climatic conditions that prevailed in the third quarter of 2016. The favorable trend of the main economic indicators and the small base in the fourth quarter of 2015 probably Stimulate economic growth on
During the last quarter of 2016, despite the effect of adverse weather conditions and global economic conditions.
The uncertainties.

Inflation, as measured by the Colombo Consumer Price Index (CICC 2006/07 = 100) increased by 3.4% in November 2016 to 4.1% from the previous year, December 2016. November, the overall inflation measured by the Swiss Consumer Price Index (CPI 2013 = 100) decreased to 4.1 percent against 5.0 percent in October 2016. Underlying inflation rose Markedly during December 2016 mainly reflecting the impact of government tax changes. Therefore, according to the core IPCC inflation has accelerated to 6.3 percent (year-on-year) in December by 2016, compared with 5.1 percent in November 2016, while core inflation based on the CPI Rose sharply up 6.8 percent in November here by 2016, down from 5.7 percent in October 2016. Despite these transitory movements, inflation is expected to remain in the middle of a figure in the coming period, on average.

In the monetary sector, the annual growth of credit granted to the private sector by commercial banks assisted the expected slowdown, and was 22% in October 2016, compared with 25.6% the previous month. However, the net increase in credit to the private sector, in absolute terms, remained high at Rs. 79.0 billion in October 2016. Meanwhile, credit to commercial banks in the public sector rose modestly in October by 2016.

As a result, money supply growth (M 2b) slowed to 17.8 percent, from the previous year, from 18.4 percent in September 2016. The liquidity of the rupee on the market levels Of domestic monetary surplus again in December, interest rates, which rose in response to the monetary tightening measures taken by the Central Bank appear to have stabilized globally during the month.

In the external sector, mainly due to the effect of an extraordinary spending increase on imports, the trade deficit increased significantly in October 2016. Tourism and workers' remittances continued to Grow at a healthy pace. Gross official reserves were estimated at US $ 5,600 million at the end of November 2016, while the Sri Lankan rupee depreciated by 3.6 percent against the US dollar so far in the course of Year.

In view of the above developments, the Monetary Board, at its meeting held on December 30, 2016, stated that the current monetary policy direction of the Central Bank is appropriate. As a result, the Monetary Board decided to maintain the permanent deposit rate facilities (SDFRs) and the Central Bank's fixed rate loans facility (SLFR) unchanged at 7.00% and 8.50%, respectively.








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