May 4, 2011 (LBO) – Sri Lanka’s average price level measured by an index at the capital Colombo, has been steady since February though non-food items have taken up the slack created by falling food prices, an official statement said. In April prices rose 9.8 percent from a year earlier, despite food prices falling 1.7 percent. The central bank said prices of most vegetables fell as the country recovered from the effects of floods, but housing and transport rose as fuel prices were raised.
The central bank said the overall index number at 233.4 has remained steady.
“It is noteworthy that the Index still remains below its level in February 2011 (233.9),” the Central Bank said in a statement.
The IMF has said that without tackling excess liquidity in the banking system, raising rates will have little effect. Sri Lanka has a pegged exchange rate with the US dollar and has limited ability to conduct independent monetary policy except by allowing the exchange rate to appreciate and avoiding debt monetizing.
The Central Bank has however raised the reserve ratio by 100 basis points in April which can slow credit which has been growing at nearly 30 percent.
The rise in yearly inflation in April was not unexpected. T