Sri Lanka targets 5 to 6-pct inflation in 2010

Jan 04, 2010 (LBO) – Sri Lanka is targeting 5 to 6 percent average inflation by end-2010 allowing the country’s base money to grow by 14.5 percent, building on low single digit inflation achieved in 2009, Central Bank governor Nivard Cabraal said. Sri Lanka ended 2009 with seasonally adjusted annual average inflation of 3.4 percent, the lowest since 1985, but worryingly unadjusted (point-to-point) inflation moved up to 4.8 percent in December from 2.8 percent in November.

“Our target is to maintain reasonable interest rates and manageable inflation,” Cabraal said.

“Our monetary program is aimed at keeping inflation at 5 to 6 percent in 2010.”

He said Sri Lanka has entered a “low inflation, low interest rate” regime and the economic stability achieved should be preserved.

Treasuries yields are now around 10 percent, down from near 20 percent in late 2008.

Sri Lanka, which does not have an explicit inflation targeting framework, targets reserve money supply (the monetary base) in a pegged exchange rate environment.

The central bank is targeting an annual average monetary base of 315.5 billion rupees for 2010.

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