The Sri Lankan economy registered its highest post-independence growth rate of 8.3 per cent in 2011, over the 8 per cent growth in 2010, with increased contribution from Industry and Services sectors, the Central Bank said this evening.
The growth in Agriculture sector was subdued, but was adequate to enforce a substantial downward pressure on domestic commodity prices. While year-on-year non-food inflation increased in March 2012 due to the full impact of the adjustment of domestic energy prices and bus fares, year-on-year food inflation remained negative for the third consecutive month.
Overall, the year-on-year change in the Colombo Consumers’ Price Index increased to 5.5 per cent in March 2012 from 2.7 per cent in February.
Domestic foreign exchange market has shown clear signs of stabilization following the expected volatility during the early stages of allowing greater flexibility in the Rupee/US dollar exchange rate, the bank said.
Accordingly, the Rupee, which depreciated against the US dollar to Rs. 130.41 on 21st March, appreciated by 3.94 per cent during the period from 21st March to 4th April 2012 to reach Rs. 125.47.
The increased foreign exchange inflows contributed to this stabilisation, while prudential measures implemented by the Central Bank supported this development.
Significant foreign inflows in the first three months of the year included the inflows to the Government securities market amounting to US dollars 400 million and inflows to the Colombo Stock Exchange of US dollars 164 million. Thereafter, on 2nd April 2012, the eighth tranche under the IMF-SBA facility amounting to US dollars 427 million was also received.
These and other foreign receipts to the private sector and the Government, have now raised the gross official reserves (without ACU balances) to approximately US dollars 6.1 billion as at 4th April 2012, which is equivalent to 3.6 months of imports, the bank said.
The Central bank also said that broad money supply (M2b) grew by 21.9 per cent, year-on-year, in February 2012.
Net Credit to the Government (NCG), increased substantially by Rs. 136.3 billion during the first two months of the year, while credit extended to the private sector also increased, year on-year, by 34.4 per cent (amounting to around Rs.100 billion in the first two months of the year).
These developments resulted in the continued high growth of monetary aggregates, although the recent policy measures introduced by the Central Bank are expected to decelerate the expansion in broad money supply in the near term. Towards such outcome, it is essential that the current shortfall in Government revenue is effectively addressed and public expenditure is further rationalised, so as to significantly lower the reliance on bank sources to finance the Government budget deficit.
Such a course of action would reverse the trend observed in the first quarter of 2012, and in that context, the recent upward revision of customs and excise duties on selected items by the Government is a display of its commitment to the necessary fiscal consolidation process, the Central Bank added. (Colombo Gazette)