ECONOMYNEXT – Sri Lanka’s central bank is watching inflation trends and has not changed a borrowing program with the expectation that a post-budget relief package will be accommodated within announced spending limits, Governor Nivard Cabraal said.
A ‘relief package’ pushed up state wages, firmly cementing the inflation already created in goods and services into the cost structure of the economy while raising fears that expenses will be financed by the central bank creating more inflation and balance of payments trouble.
Governor Cabraal had earlier lifted price controls on Treasuries yields allowing more of the budget deficit to be financed by real private sector savings through bonds, though revenue numbers in the budget have been described as “ambitious” by analysts.
“We have been advised that it (relief package) will be accommodated within the existing budget,” Cabraal said.
“If it is accommodated within the budget the danger is reduced. The borrowing program has not been adjusted.”
Sri Lanka’s inflation has soared to 12.1 percent measured by the Colombo Consumer Price Index in the 12-months to December 2021, almost double the rate of South Asian nations with monetary stability and just behind the State Bank of Pakistan which is also experiencing currency trouble.
Sri Lanka’s policy rate at 6.0 percent is half the 12-month inflation.
Cabraal said inflation in the near term is not expected to go up as fast as in the past two months. Gold, food and fuel prices had gone up globally but seem to peak.
“I believe inflation numbers will not be as high as the last two months. Globally gold, food, fuel prices have gone up,” he said.
“There is a moderation in some prices. We have seen freight rates come down.
“If there is a rise in demand-driven inflation we will have to deal with it. We will watch the situation very carefully,” he said.
“Market interest rates have moved up.”
The central bank’s first monetary policy statement for 2022 is expected on January 20. (Colombo/Jan12/2021)