Apr 11, 2009 (LBO) – Sri Lanka’s inflation will hit zero by the middle of the year, a senior central banker said, with 12-month price inflation in the capital Colombo already down to 5.3 percent in March 2009. However, analysts expect the rupee to weaken from May onwards adjusting to previous loose monetary policy under an IMF program. The rupee has fallen to 116.00 levels against the greenback in April from 108.00 when peg defence began in September.
The central bank itself is cutting rates in a bid to boost credit growth, which had turned negative.
“Inflation will come down even further,” said Nandalal Weerasinghe, chief economist Central Bank of Sri Lanka.
“By the end of June we expect inflation to hit zero.”
The March inflation was the lowest since 2004, when the country abandoned fiscal and monetary prudence and went on a spending spree mostly financed by money printing, under what was called a ‘home grown’ policy framework.
When inflation hit 29.9 percent in mid-2008 authorities promptly changed the weights of the widely watched Colombo Consumer Price Index (CCPI) and dropped the highly taxed tobacco and alcohol in a transparent attempt to understate inflation.