ECONOMYNEXT – Sri Lanka’s inflation galloped to 18.8 percent in March 2022 in the capital Colombo up from 15.1 percent in February as the central bank printed money to keep interest rates low and the currency collapsed in a failed float.
The Colombo Consumer Price Index rose to 164.9 points from 160.1 points.
Sri Lanka started to experience galloping inflation from around November 2021 after two years of money printing to create a ‘production economy’.
The food index has risen 30.1 percent over the past year and 42.2 percent from December 2019 after which so-called Modern Monetary Theory began.
Meawhile the rupee fell from 203 to 300 to the US dollar after an attempt to float it while having a surrender requirement and low interest rates.
Sri Lanka has a soft-pegged central bank with discretionary monetary anchors that conflict with each other and triggers currency crises.
It has an external anchor (flexible exchange rate) and domestic anchor (flexible inflation targeting), which allows officials to delay interest rate rises on various pretexts.
A favourite pretext is that some part of inflation is not monetary (non-demand driven).
The central bank targets high inflation index of up to 4 percent, but also mentions core inflation and the exchange rate.
In the past it has targeted a real effective exchange rate index at 100 in the flexible inflation targeting regime. (Colombo/Apr01/2022)