Sri Lanka watching inflation: CB Governor

Feb 23, 2010 (LBO) – Sri Lanka is concerned about inflation but is expecting pressure on the monetary system to ease after April following the island’s traditional New Year festival, Central Bank Governor Nivard Cabraal said. This week, the Treasury bill stock held by the Central Bank rose to 43 billion rupees from around 35 billion rupees a week earlier, indicating fresh monetization of debt raising concerns among inflation watchers.

“We will watch the situation,” Cabraal said. “With the New Year there will be additional pressure. It will ease after April.”

Parliamentary polls are due to be held on April 08 which also puts pressure on government cash flows. The April elections are coming closely after presidential polls in January.

During the April traditional New Year festival the government usually pays the salary of state workers early creating a large cash need to pay two months of wages at the same time. Salaries are the single biggest cashflow item in Sri Lanka’s state budget.

In February 12-month inflation rose to 6.5 percent from 4.8 percent a month earlier.

“We are concerned about inflation,” Cabraal said. “That is foremost in our mind. That is why we held rates last year.”

Cabraal sa