Financial Times

The Monetary Board of the Central Bank said last week it was maintaining its current Repurchase and Reverse Repurchase rates at 9.125 per cent and 10.625 per cent, respectively after reviewing recent economic developments and prospects but warned that subsidising energy is expensive and cannot be continued.

The Bank said all major sectors are expected to perform well and contribute to overall growth in the economy. The agriculture sector is expected to expand in 2006 mainly due to better performance of tea, rubber and coconut, and the expected recovery in the fisheries sector. The Maha 2005/2006 paddy production reached a record harvest level while the industry sector is expected to grow further in 2006 benefiting from the improvements in both export-oriented industries and domestic market oriented industries.

“The continued expansion in construction activity bolstered by the expansion in both residential and non-residential construction, and increased hydropower generation would contribute further to the expansion of the industrial sector output. Within the services sector, the dynamism seen in the main sub sectors of trade, telecommunication, transportation and financial services, will continue in 2006,” the Bank said.

Cumulative exports grew by 8.8 per cent during the first six months of 2006, reflecting the higher growth in exports of rubber based products, textiles and garments, and food and beverages.

Imports grew at a faster rate of 20.3 per cent in the first half of 2006 due to the higher increase in intermediate and investment goods. The increase in the imports of intermediate goods was led mainly by historically high petroleum prices. Although the trade deficit widened, it was partially offset by higher foreign currency inflows to the country through private remittances, which grew at 24 per cent during the first half of 2006, and higher net inflows to the government. Accordingly, the balance of payments (BOP) has recorded a surplus of $164 million by end July 2006. Reflecting the BOP surplus, the gross official reserves have increased to $2,542 million by August 11 2006 from $2,458 million at end 2005.

“The Monetary Board expressed concern over the continuing rise in international oil prices exerting pressure on the country’s balance of payments. This had made it necessary for the country to increase domestic fuel prices.

The possible solutions include conserving energy and economising the use of fuel since the country cannot continue to subsidise energy consumption,” the statement said.