Fuel price hike in October “will cause a marginal upward movement in prices,” the Sri Lankan Central Bank said here on Wednesday. However, it expected that improvements in domestic supply conditions, arising from the high growth momentum of the economy, would keep inflation down during the rest of the year. Sri Lanka pondered over a fuel rate hike even as oil prices in the international market kept heading north. It finally hiked prices at the end of the last leg of local body polls.

The Bank seemed to prefer the hugely unpopular Indian model of oil price hike. It said: “However, going forward, adjusting domestic fuel prices to reflect persistently high international market prices would minimise the adverse impact on future inflation and the economy through reduced price distortions.”

Based on provisional data, earnings from exports as well as expenditure on imports grew further on a year-on-year basis in September. The growth of the latter was mainly due to higher imports of intermediate and investment goods, which included project related imports funded through financial inflows to the government that amounted to $1.460 billion during the first three quarters of the year.

Even though the deficit in the trade account has expanded, higher earnings from tourism, increased worker remittances as well as other inflows to the services account helped contain the impact of trade deficit on the current account balance.

The Bank said that the outlook remains positive with the economy continuing along the high growth trajectory. Inflation decreased for the third consecutive month in October with the year-on-year change in the Colombo Consumers' Price Index (CCPI) (2006-07=100) declining substantially from 6.4 per cent in September to 5.1 per cent in October. Annual average inflation eased from 7.2 per cent in September to 7.1 per cent in October.

Even though inflation and the inflation outlook remain benign, the Monetary Board is of the view that a change to the existing monetary policy stance is not warranted. “Hence, at its meeting held on November 15, the Monetary Board decided to maintain the policy interest rates of the Central Bank and the Statutory Reserve Ratio applicable to all rupee deposit liabilities of commercial banks at their current levels. Accordingly, the Bank's Repurchase rate and the Reverse Repurchase rate will be 7 per cent and 8.50 per cent, respectively, while the SRR will be 8 per cent,” the Bank said.