Sri Lanka floods will not need a monetary response: CB Governor

Jan 18, 2011 (LBO) – Sri Lanka’s recent floods will have minimal impact on long term inflation and will not need a monetary response but there will be ‘some economic impact’ from crop losses, Central Bank Governor Nivard Cabraal said. Large swathes of rice fields in Sri Lanka east and north central areas went under water during recent floods.

“There will be some economic impact, but it is not as major as some people might think,” Central Bank Governor Nivard Cabraal said.

“In many areas the loss is not that great and it is not an irretrievable loss.”

Cabraal said about 200,000 metric tonnes of rice crop may be lost and the daily consumption was about 6,000 tonnes of rice or 180,000 tonnes a month.

Now the northern areas are coming into production. There will be an impact but certainly not of major significance.

“A month might be affected,” Cabraal said. “But we have two months of stocks, and that will compensate.”

In a clear bid to dampen inflation expectations Cabraal said there will not be a permanent price effect “unless people think it is going to have an impact”.

People who expect prices to rise act in ways that can push up prices. However inflation is primarily a monetary phenomenon caused by