Although prices of some items in the food category increased,  the base effect and the decline in non-food prices have contributed to the low inflation, it further states.

Looking ahead, year-on-year inflation is expected to remain comfortably within mid-single digit levels during the remainder of the year in spite of weather related variations in agricultural produce.

In the external sector, the trade deficit has contracted for the eighth consecutive month in May 2014 led by a contraction in expenditure on imports while an increase in earnings from exports was observed mainly as a result of higher industrial and agricultural exports. Inflows from workers’ remittances and earnings from tourism have continued to grow. In the meantime, increased foreign inflows, on a net basis, were recorded due to investments in Government securities and inflows to the Colombo Stock Exchange and the Private Sector.  Given the substantial foreign inflows, the Central Bank has absorbed around US dollars 735 million from the domestic foreign exchange market by 10 July 2014. Gross Official Reserves as at end May 2014 remained strong at US dollars 8.8 billion, equivalent to 5.9 months of imports, the July Monetary Policy Review reveals.

Further, in support of credit granted on gold backed loans, the Central Bank introduced a new credit guarantee scheme for pawning advances in June 2014 for Licensed Commercial Banks and Licensed Specialised Banks engaged in pawning activities, to provide enhanced levels of credit to their customers. This scheme would assist farmers, small business owners and the SME sector entrepreneurs who use pawning advances for their economic and business activities.(KH/SI)