Sri Lanka’s central bank battles inflation expectations

Nov 11, 2009 (LBO) – Sri Lanka’s central bank is in a battle to dampen high public inflation expectations after capping price rises in the island’s capital Colombo to low single digits for more than a year. In 2009 the Central Bank is hoping to end the year with inflation at 3.5 percent after seeing only a 1.4 percent rise in the widely watched Colombo Consumer Price Index in the twelve months to October, compared to 28.2 percent in June 2008.

Two Years

“We are also hoping with our monetary policy as well as other real economy initiatives that the government is hoping to implement we will be able to keep inflation below 5.0 percent even next year,” Central Bank governor Nivard Cabraal said.

“Once you have two years of low inflation, consecutively, it will give a new momentum to our economy in the sense that it will register in the minds of every one that there is a low inflation regime.”

Inflation fell in absolute terms from July 2008, when the index hit 206.3 points until April 2009, when it was 201.0. From July 2008 to October 2009 – a period of 18 months – the index has climbed just 1.4 percent.

Since May the index has started climbing again to reach 209.4 points in Octob