Inflation likely to remain in 4 – 6 percent range in 2019: Central Bank projections

Feb 22, 2019 (LBO) – Projections of the Central Bank indicates that inflation is likely to remain in the desired 4 – 6 percent range in 2019 and beyond.

Headline inflation and core inflation increased in January 2019 mainly due to the increase in non-food inflation driven by higher expenditure on certain items such as house rentals and education.

“Recent upward adjustments to fuel prices as well as possible increases in administratively determined prices of certain commodities could exert some transitory price pressures in the coming months,” the Central Bank said.

“However, domestic supply side developments are expected to be favourable in the period ahead.”

In the financial account, foreign investments to the government securities market recorded a net inflow thus far during 2019.

The Sri Lankan rupee strengthened somewhat underpinned by net inflows to the government securities market and the slowdown in imports along with changing global financial conditions.

“Sri Lanka met the scheduled repayment of the maturing International Sovereign Bond of US dollars 1 billion in January 2019,” the Central Bank said.

“By end January 2019, gross official reserves stood at US dollars 6.2 billion, which was sufficient to finance 3.4 months of imports.”

The Central Bank said the expansion in credit to both public and private sectors was more than expected in 2018 irrespective of tight market liquidity conditions and high interest rates.

“This was partly attributable to the private sector borrowers’ short term responses to policies adopted to limit imports and related expectations,” the Central Bank said.

“The government also relied more on domestic sources of financing, while the weak financial performance of state-owned business enterprises also contributed to credit growth,”

“However, driven by the contraction in net foreign assets of the banking sector, the year-on-year growth of broad money (M2b) decelerated by end 2018 as envisaged.”