Sri Lanka's Central Bank here Wednesday said that the country's rate of inflation was expected to moderate further but continuing rise in global oil prices exerts pressure on the country's balance of payments.

Releasing its monthly monetary policy review the bank said it was retaining its key policy interest rates unchanged, the repurchase rate at 9.125 percent and the reverse repurchase rate at 10.625 per cent.

The rates remained unchanged for the first time in two months as the bank had raised rates at both June and July monthly reviews.

But most analysts expected the rates to be raised for the third month in a row as it was necessary to combat inflation.

However the Central Bank said that "inflation measured as the point to paint change in the Colombo Consumers' Price Index declined from 17.7 percent in June 2006 to 14.7 percent in July 2006 and is expected to moderate further".

The bank warns that international oil prices are putting pressure on the island's economy prompting the government to raise fuel prices.

Sri Lanka anticipates 7 percent growth in the current year to maintain the continued growth resulted since the year 2002 when the government and the Liberation Tigers of Tamil Eelam (LTTE) rebels entered the Norwegian backed truce to end over two decades of fighting.

However a new cycle of violence since December last year and some of the bloodiest fighting since the truce began have contributed to a situation of uncertainty in the island.

Source: Xinhua