Sri Lanka anchor currency inflation up

Jan 18, 2010 (LBO) – Consumer inflation in the United States, to whose currency the Sri Lanka rupee is tightly pegged, rose to 2.7 percent in December 2009 from a year earlier according to the latest data, as the island’s inflation also moved up.

Sri Lanka has been quantity tightening from April 2009 by selling down Central Bank’s Treasury bills portfolio and collected 5.2 billion US dollars in foreign reserves by the year end, up from around a billion US dollars in March.

Traded commodities tend to reflect US monetary action and a pegged central bank has little control over imports other than to nudge the currency up. Unadjusted (point-to-point) inflation measured by the CPI-U index covering all urban consumers rose to 2.72 over the 12 months to December up from 1.84 percent in December, the United States Bureau of Labour Statistics said.

US price levels dipped to a negative 2.1 percent in July 2009, and has since been climbing.

In Sri Lanka 12-month inflation dipped to 0.9 percent in June and 0.7 percent in September and has since been climbing. In December prices rose 4.8 percent from a year earlier, up from 2.8 percent in November.

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