Nov 02, 2007 (LBO) – Sri Lanka’s central bank says it would not have to print money as the government had borrowed abroad helping lower inflation in the near future, but analysts warn that a massive dollar liquidity influx is now unsettling the monetary system. Analysts say the October jump in inflation of 2.8 percent, which is equal to the amount well-managed countries allow their central banks to inflate an economy for an entire year, should serve as a red flag for the monetary authority not to be complacent.
They warn that while repaying of overdrafts and central bank credit before the budget would make the numbers look good, ordinary Sri Lankans would have to pay through higher inflation for such hasty actions.
Central Bank net credit to government or printed money had risen to 127 billion rupees in August accounting for about half the base money of the country, driving county-wide inflation to 21.7 percent in August while inflation in Colombo rose to 19.6 percent in September.
But the monetary authority now says cash raised from a 500 million dollar bond would help reduce inflation because the bank would not have to print money to bridge the deficit.
“These developments would lead to the overall decline