Sri Lanka's economy which was affected by more than 30 years of war has expanded by 7.9 percent in the first quarter of 2011, the country's Central Bank said on Friday.
The bank said that Sri Lanka's inflation moved downwards significantly to 7.1 percent in June from 8.2 percent in May 2011 and annual average inflation was 6.7 percent by June 2011.
The bank said expanded productive capacity of the economy will help enhance supplies of food as well as other commodities, thereby helping to bring down consumer prices, which results in headline inflation reducing.
"Inflation is expected to decline further in the months approaching," the bank said.
The bank also said that Sri Lanka's exports have continued to perform well in 2011, and earnings from tourism as well as foreign exchange inflows on account of workers' remittances are expected to increase further this year.
Having taken into consideration the continued decline in inflation as well as other macroeconomic developments, the bank said it has decided to maintain its policy interest rates at 7.00 percent while its reverse repurchase rate will remain at 8.50 percent.
Sri Lanka became one of the world's fastest growing economies after its civil war against the Tamil Tigers ended in 2009. In 2010, Sri Lanka's GDP grew by 8 percent while its stock market has nearly quadrupled in value.
Improvements in security and infrastructure projects like ports, highways and airports have led to a gradual return of foreign investment to the island.