July 08, 2011 (LBO) – Sri Lanka’s central bank held its policy rate at which excess money is withdrawn from the market at 7.0 percent in July saying credit growth was slowing and inflation would ease further. In June 12-month inflation fell to 7.1 percent from 8.1 percent in May, measured by the widely watched Colombo Consumer Price Index (CCPI) in which the basket was changed to a new base period from June, reducing the food share.
The central bank said it expected inflation to fall in the “approaching months”.
Sri Lanka has a peg with the US dollar and when global commodity prices move up as the dollar weakens due to loose US monetary policy, prices also rise in the domestic market.
Global commodity price inflation has eased in recent weeks, and the Federal Reserve has now ended its controversial ‘quantity easing’ program.
In the first part of the year, prices rose amid floods which reduced supply of vegetables, largely a non-traded commodity, which cannot be readily imported.
In Sri Lanka in the first quarter the central bank also prints money to give a ‘provisional advance’ to the state during the period and it also transfers profit to the gover