May 23, 2011 (LBO) – Sri Lanka’s inflation is expected to come down in May following spike to 9.8 percent in the 12-month to April and the central bank is comfortable with the current interest rates, Governor Nivard Cabraal said. Sri Lanka has a pegged exchange rate and foreign exchange market interventions generate rupees outside open market operations nullifying the effect of policy rates.
Excess liquidity is now more than 70 billion rupees or around 20 percent of the officially defined monetary base.
The Central Bank earlier raised reserve ratios draining about 18 billion rupees from the banking system. Cabraal said at the moment the reserve ratio rise was considered sufficient.
“This month it (inflation) will come down,” Cabraal said. “As is it I am comfortable with the rates.”
In April, though the 12-month price gap widened to 9.8 percent from 8.6 percent the absolute index number rose modestly to 233.4 points from 233.2 points a month earlier, helped by falling food prices.
Last May prices rose 1.6 percent, and any lower price rise this May would push the annual number down. Sri Lanka has one of the highest inflation levels in Asia almost equal to India. But India’s widely watched wholesale price i