Sri Lanka February inflation falls to 7.6-pct

Feb 27, 2009 (LBO) – Sri Lanka’s inflation in the 12 months to February 2009 measured by the revised Colombo Consumer Price Index (CCPI) fell to 7.6 percent from 10.7 percent in January, the government statistics office said.

However Sri Lanka is now in the middle of a severe balance of payments crisis, and the Central Bank has made unprecedented liquidity injections to the market.

The current exchange rate is seen as being under strain and increasingly undefendable by a central bank that is rapidly running out of foreign reserves.

Economic analysts say there is an inflation overhang in the economy which would be reflected in the inflation index as the exchange rate adjusts.

Updated In the month of February inflation fell 0.1 percent with the index falling in absolute terms from 203.1 in January to 202.9 in February.

The moving average of the index, which is a lagging indicator, fell to 20.3 percent in February from 21.6 percent in January.

Tight monetary policy by the central bank and the effects of global deflationary conditions are bringing down inflation which had shot to a record near 30 percent in the middle of 2008.

Central Bank Governor Nivard Cabraal said last week that Sri