Performance on the trade front continued to improve during the first ten months of 2019 with imports contracting considerably and merchandise exports recording a modest growth, thereby leading to a cumulative contraction in the deficit in the trade account, a media release by the Central Bank on its final Monetary Policy Review for the year noted.
Provisional data suggests a significantly lower current account deficit in the first nine months of 2019 compared to the corresponding period of 2018. The tourism sector, which suffered a setback following the Easter Sunday attacks, has since recorded a faster than expected recovery.
Workers’ remittances were somewhat low, while outflows of foreign investment were observed from the Government securities market and the equity market during the year. Nevertheless, the Sri Lankan rupee appreciated against the US dollar by 0.7 per cent thus far during 2019, with mixed movements being recorded throughout the year, according to the bank’s communiqué. Meanwhile, gross official reserves remained at US dollars 7.5 billion by end November 2019, which were sufficient to cover 4.5 months of imports.
Although a steady expansion in credit disbursed to the private sector in absolute terms was observed during the four month period commencing August 2019, the year-on-year growth of private sector credit continued to decelerate thus far during the year.
Headline inflation, as measured by the year-on-year change in both Colombo Consumer Price Index (CCPI) and National Consumer Price Index (NCPI), decelerated in November 2019 driven by the slowdown in food inflation. Further softening of inflation could be expected in the period ahead mainly due to the impact of the downward tax revisions and the reduction in selected administratively determined prices. Nevertheless, weather affected food price movements could result in increased volatility in inflation in the near term.