July 01, 2008 (LBO) – Sri Lanka’s central bank said inflation which hit the highest levels in the country’s record keeping history in the first half of 2008, may start to fall from August, in the wake of better monetary policy. Sri Lanka’s inflation measured by the Colombo Consumer’ Price Index rose to 28.2 percent in May from 26.2 percent in June. The government changed the weights of the index after inflation hit a historic high of 29.9 percent in April.
The Central Bank said the “full impact” of fuel, bus and rail fares made in May was felt in the June without explaining how price increases made earlier showed up in the index in the following month.
“These price adjustments, though responsible for a one time increase in the general price level, would augur well for future macroeconomic stability by freeing the government budget of the necessity for subsidising these sectors at the cost of future inflationary pressures,” the Central Bank said.
Sri Lanka budget deficit and financing of cash shortfalls with central bank credit has been blamed for high inflation in the country.
However analysts have also said that holding policy rates at 12.00 percent, and the growth of government credit is also undermining th