Sri Lanka's economy is shaping up along the projected growth levels, the country's central bank said Wednesday.

The Central Bank of Sri Lanka announced in its monthly monetary policy review that the economy's progress had led the bank to retain its key policy interest rates at current levels for a further one month.

The central bank increased its policy interest rates by 25 basis points in May 2005 and by a further 50 basis points in June 2005, making its repurchase rate and reverse repurchase at 8.25 percent and 9.75 percent, respectively.

The agricultural sector is on a firm recovery path due to favorable weather conditions while the industrial sector had shown a steady improvement due to Sri Lanka's apparel industry securing duty free concessions from the European Union, said the bank.

"Inflation has continued to moderate due to the improvements in supply conditions as well as the monetary policy decisions," the bank added.

The bank said earlier that the high cost of fuel and essential commodities have pushed the rate of annual inflation up to 12.6 percent in June.

Due to the improvement in the trade balance, higher private remittances, tourism earnings, official inflows and debt relief, the country's gross official reserves grew to 2,370 million US dollars by end of June up from 2,196 million dollars by end of December 2004.

Benefiting from these factors, the Sri Lankan rupee has appreciated against the US dollar by 4.5 percent so far this year, said the bank.

Source: Xinhua