Central Bank of Sri Lanka says more monetary tightening needed as inflation rages

December 29 (LBO) – Sri Lanka’s central bank said further monetary tightening was needed to contain inflation as consumer prices in December went up by 2.3 percentage points keeping 12-month inflation at a dizzy 19.3 percent. The latest warning that a rate hike should be expected at the next monetary policy meeting came two weeks after a 37.5 basis point hike in December after November consumer prices jumped by 4.4 percent driving 12-month inflation to a 10-year high of 19.8 percent.

Central Bank said its core inflation index, a stripped down version of the Colombo Consumer Price Index without volatile food and administered prices was also increasing and was at 15 percent.

More hikes

“This indicates the requirement for further tightening of demand management policies, including tightening of monetary policy and rationalization of fiscal expenditure and tariff,” the Central Bank said in a statement, within hours of the government’s statistic office releasing December inflation numbers.

“Based on inflation projections, high inflation is expected to continue into the first quarter of 2007 as well and to decline by the end of the year. However, there will be upward and downward risks associated with hea