Sri Lanka inflation to ease; monetary stance sufficient: Deputy Governor

Oct 10, 2011 (LBO) – Sri Lanka will continue its current monetary stance with inflation expected to moderate, Deputy Central Bank Governor Dharma Dheerasinghe has said, though a signal rate edged higher with new policy tools being deployed. Sri Lanka’s 12-month inflation fell to 6.4 percent in September from 7.0 percent in August.

Inflation was expected to dip below 6.0 percent in December, Dheerasinghe said.

“We think the current monetary stance is sufficient,” Dheerasinge said in an October 06 interview.

“Unless we see some extraordinary developments we will continue with this policy.”

Dheerasinghe was speaking to LBO a day after the Central Bank resumed daily reverse repo auctions to inject cash and calm money markets after a liquidity crunch from forex sales pushed overnight interest rates up. The Central Bank is expected make a monetary policy announcement later Monday.

Sri Lanka has a policy corridor made up of a 7.0 percent standing window to drain excess liquidity and 8.50 percent to inject cash into the system.

But over the past three weeks, a signal policy rate has been converging around 7.25 percent as long dormant monetary policy tools were re-activated by the Central Bank to counter liquidity s