Sri Lanka inflation accelerates to 5.4-pct in July
ECONOMYNEXT – Sri Lanka’s 12-month inflation accelerated to 5.4 percent in July 2018, up from 4.4 percent in June, with prices rising 0.3 percent in the month, data from the state information office showed.
The Colombo Consumer Price Index rose to 125.8 points with foods rising 0.9 percent and non-foods rising 0.1 percent.
Consumer prices fell in the first quarter with the index falling absolutely from 122.8 in December 2017 to 121.4 in April 2018.
The central bank went on a money printing bout from March, at first terminating term repo deals in March.
From April the central bank cut rates and then injected tens of billions of rupees via term reverse repo money and also engaged in outright purchases of Treasury bills, amid a so-called ‘buffer’ strategy to repay bonds which involved more central bank accommodation, triggering a run on the rupee.
Though there was an underlying strengthening of the US dollar, which made several floating exchange rates also weaken, Sri Lanka’s rupee also fell in 2017 due to Mercantilist or trade-oriented monetary policy involving real effective exchange rate targeting.
The central bank then tightened policy and withdrew excess liquidity. Some of the excess liquidity injected was mopped up by foreign reserve sales.
Sri Lanka has a soft-pegged exchange rate regime, which some analysts say is the biggest threat to the economy, which has remained without major reforms for over 50 years. (Colombo/July31/2018)