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CB
upbeat of achieving monetary targets
 Central
Bank on Monday expressed confidence of achieving quarterly
monetary targets based from its recent performance.
The strategy of the Central Bank in implementing its
monetary policy continues to be that of achieving targets
for the quarterly average of daily reserve money, by
absorbing liquidity through open market operations and
allowing market interest rates to adjust accordingly
to reflect the cost of funds.
“Having
met the quarterly targets for average reserve money
in the first and second quarters of 2008, the Central
Bank has been able to maintain average reserve money
well below the indicative targets for July and August
2008, and it is therefore expected that the reserve
money target for the quarter ending September 2008 would
be achieved,” the Bank said following the September
monetary policy review.
The Bank said inflation, as measured by the year-on-year
change in the Colombo Consumers’ Price Index (CCPI=2002),
declined to 24.9 per cent in August from the peak of
28.2 per cent in June 2008.
“This decrease could be attributed mainly to improved
domestic supply conditions in relation to food and the
resulting decline in prices of food items as well as
the containment of demand pressures through monetary
policy,” the Bank said.
According to the Bank the moderation in demand pressures
is evidenced by the steady deceleration in broad money
supply growth which is to be continued with the achievement
of the recently revised tighter reserve money targets,
further decelerating demand pressures in the future.
Year-on-year growth in the broad money supply declined
further in July 2008 to 13.2 per cent from 16.6 per
cent at end 2007.
Meanwhile, pressures on the price level emanating from
international commodity prices have further moderated.
“These favourable developments on both demand and
supply sides are likely to shape inflation expectations
also so as to contain inflation further. Given the improvements
on both the supply side and the demand side, prices
are expected to further decelerate in the near term,”
the Central Bank said.
The release of the next regular statement on monetary
policy will be on 20 October 2008.
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