Bloomberg News

Sri Lanka’s July Inflation Rate Accelerates to a 15-Month High

July 31, 2012

Sri Lankan inflation accelerated to 15-month high in July as a drought hurt crops and drove up food costs and a weaker currency made imports costlier.

Consumer prices in the capital, Colombo, increased 9.8 percent from a year earlier after gaining 9.3 percent in June, the Department of Census and Statistics said on its website today. The median of eight estimates in a Bloomberg News survey was 9.4 percent.

Sri Lanka left interest rates unchanged for a third straight month in July as one of Asia’s fastest inflation rates limits room to join a stimulus drive stretching from China to Europe. The island’s current monetary policy is appropriate, the International Monetary Fund said earlier this month, after disbursing a $415 million final loan tranche.

“The central bank will likely stick to keeping policy rates on hold to help inflation cool off,” Sanjeewa Fernando, an analyst at CT Smith Stockbrokers Pvt. in Colombo, said before the release. “They’d also want to keep a balance of supporting growth.”

The rupee slipped 0.1 percent to 131.95 per dollar as of 3:32 p.m. local time, while the Colombo All-Share Index (CSEALL) of stocks closed up 0.2 percent. The currency is down about 17 percent in the past year.

Sri Lanka moved to a more freely floating exchange rate in February to curb imports and narrow a trade deficit that’s pressured currency reserves. Under the policy overhaul, the island also raised energy prices to reduce inward shipments of oil and increased borrowing costs in February for the first time since 2007 to damp credit growth.

A severe drought threatens about 150,000 acres of paddy, the state-run Daily News said June 27. The monsoon has failed this year, Energy Minister Champika Ranawaka said July 5.

Central Bank of Sri Lanka Governor Ajith Nivard Cabraal predicts 7.2 percent economic growth in 2012. Authorities are gauging the impact of the policy overhaul undertaken this year to narrow the trade imbalance, before “making a call” on monetary policy, he said on July 23.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net

To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net


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