Sri Lanka’s Inflation Rate Held Near a One-Year High in December

Sri Lanka’s inflation rate held near a one-year high in December, adding pressure on the central bank to raise interest rates.

Consumer prices in the capital, Colombo, rose 6.9 percent from a year earlier after a 7 percent gain in November, the statistics department said on its website today.

The Central Bank of Sri Lanka said Dec. 14 it will take “appropriate” steps to check any “build up of demand pressures.” Governor Ajith Nivard Cabraal left rates unchanged this month after reducing them in July and August even as counterparts in India and Pakistan tightened monetary policy.

“Sri Lanka has little room to ease rates further to boost growth,” Saminda Weerasinghe, an analyst at Asia Capital Plc in Colombo, said before the report. “If inflation trends higher because of sustained economic growth momentum, the central bank will need to raise borrowing costs next year.”

Sri Lanka’s $42 billion economy may grow 8 percent this year and by 9 percent in 2011, Cabraal said on Dec. 6.

The main contributors to inflation were food products, the statistics dept said in the statement.

“Among the food commodities, vegetables, coconut and coconut oil, which have significant weights in the CCPI basket, recorded price increases on a year to year basis,” the statement showed.

Sri Lanka plans to introduce inflation targeting in its monetary policy in order to keep prices low for long periods, the central bank said on Nov. 22. It didn’t say what level of inflation it would be targeting.

The central bank’s reverse repurchase rate is 9 percent, which is the lowest level since November, 2004, and the repurchase rate is 7.25 percent.

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

To contact the editor responsible for this story: Stephen Foxwell at sfoxwell@bloomberg.net

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