Sri Lanka policy rates unchanged: Inflation to reduce further with tax cut in Jan 2015

Jan 27, 2014 (LBO) – Sri Lanka’s central bank held policy interest rates at 6.5 and 8.0 percent taking in to the consideration of remaining low inflation in the island Central Bank said in its monetary policy review of January 2015. The regulator says with tax cut on fuel and other key commodities announced in the Government’s ‘100-Day Programme’ are expected to reduce inflation further in the months ahead.

In December 2014, headline inflation on a year-on-year basis was at 2.1 per cent compared to 1.5 per cent in the previous month.

Core inflation, which directly measures underlying price pressures, continued to remain between 3-4 per cent while decelerating to 3.2 per cent in December 2014 from 3.6 per cent in November.
While low inflation is mainly attributable to contained demand pressure in the economy, it was also supported by favourable supply side developments, particularly the downward revisions in domestic energy prices in the last few months of 2014, Central bank said.

Subdued demand pressure and inflation expectations in the economy, the favourable impact of further reductions in fuel prices in January 2015, and the expected reduction of administered prices of other key commodities announced