Aug 07, Colombo: Sri Lanka's Central Bank has decided to maintain current policy interest rates as the Monetary Board of the Bank is satisfied that the policy measures adopted earlier this year to reduce the high import growth and the high credit expansion are yielding the expected results.

Following its monthly Monetary Board meeting, the Central Bank in a statement today said the Repurchase rate would remain at 7.75 percent while the Reverse Repurchase rate remains at 9.75 percent.

The Central Bank said the in the external sector, preliminary estimates indicate that the deficit in the trade account in the second quarter of 2012 declined with the deceleration of expenditure on imports in June 2012.

The growth of credit extended to the private sector by commercial banks has declined from 18.1 percent in the second half of 2011 to 11.4 per cent the first half of 2012.

Although the global economic conditions continue to worse, Sri Lanka's economy will not be adversely affected, the Central Bank said, adding that the revised economic growth forecast of 7.2 percent will still be possible.

Foreign inflows to the country included net foreign investments of US$ 205 million in the Colombo Stock Exchange and US$ 842 million in government securities, final tranche of the IMF-SBA facility of US$ 414 million and the proceeds of the successful fifth International Sovereign Bond issue of US$ 1 billion in July 2012.

The gross official reserves are estimated to have risen to around US$ 7.1 billion by end July 2012, the Central Bank noted.

However, the inflation rose with year-on-year inflation, which has remained at single digit levels for the past 42 months, to 9.8 per cent in July 2012 although annual average inflation has continued to remain at around 6 per cent since February 2012.

The rise in inflation has been attributed mainly to the adverse weather conditions and the resulting disruptions to domestic food supplies.

Despite the rise in inflation in July and possibility of some transitory inflationary pressures in the near term, the Central Bank is optimistic that the expected improvements in domestic supply conditions as well as the recently implemented measures would contain consumer price inflation at single digit levels during the remainder of the year.