Rocketing Sri Lanka prices prompt calls for inflation targeting

Oct 06, 2007 (LBO) – The overshooting of a self-declared Central Bank 10 percent inflation target for 2007 is strengthening the case for reforming the institution and bringing legislated inflation targeting to Sri Lanka. .

In January 2007 the Central Bank issued a monetary policy road map promising to debauch the internal value of the Sri Lanka rupee by only 10 percent as measured by the Colombo Consumer Price Index (CCPI) this year.

Lost it

But Central Bank governor Nivard Cabraal told a business forum last month that “we may not be able to have that target at the end of this year”. Consumer inflation is now running at 17.3 percent.

On Thursday the Central Bank’s deputy director of economic research K D Ranasinghe told members of the Ceylon Chamber of Commerce that the purchasing power of the rupee based on CCPI would be destroyed as much as 14 percent this year.

“Originally we thought that point-to-point inflation would be single digit, or below ten percent by the end of the year,” Ranasinghe said.

“But current trends indicate that it would be more than 10 percent and our projection is that it would settle around 13 to 14 percent.”

The external value of the rupee, measured by