May 5, 2015 (LBO) – Sri Lanka is expected to maintain single digit inflation until end 2015 and inflation is expected to be maintained in the range of 3-5 per cent in the medium term, Central Bank annual report 2014 said.
Meanwhile, annual consumer price inflation is projected at 3.0 per cent in 2015 and around 4.0 per cent thereafter, supported by capacity expansion through new investment initiatives and prudent monetary policy measures.
The conduct of monetary policy in the medium term will be aimed at maintaining inflation in a range of 3-5 per cent on average while facilitating the expansion of economic activity.
Central Bank said it would continue to adopt appropriate monetary policy measures to maintain inflation at low single digits.
“The impact of significant reductions in domestic energy and petroleum prices following lower international energy prices as well as reductions in the prices of some major essential commodities, is likely to result in low inflation, particularly in the first half of the year,” the bank said.
“Thereafter, inflation is expected to remain at around mid-single digit levels by end 2015,”
Nevertheless, possible reversal in international commodity prices as well as demand pressures emanated from the expansion in money and credit aggregates and wage pressures could pose upward risks to inflation projections.
“In such circumstances, the Central Bank would adopt timely policy measures to arrest building up of demand pressures and support the government’s efforts to improve supply conditions and productivity, thereby creating a conducive environment to sustain the low inflation regime going forward.”
Inflation remained at single digit levels for the sixth consecutive year, with year-on-year and annual average inflation declining to 2.1 per cent and 3.3 per cent, respectively, by end 2014, from 4.7 per cent and 6.9 per cent, respectively, at end 2013.