Sri Lanka 2009 end inflation to be 3.5-pct: CB Governor

Oct 29, 2009 (LBO) – Sri Lanka’s inflation would be 3.5 percent by end-2009 setting the stage for lower interest rates and higher growth as investor confidence in the economy was rising, Central Bank Governor Nivard Cabraal said. “We are having inflation of one percent and we intend to keep it that way,” Cabraal told reporter Thursday.

“Inflation would be about 3.5 percent at the end of the year.”

Cabraal said the economy had stabilized, interest rates were falling foreign reserves were rising towards five billion US dollars and sovereign credit ratings were improving.

Sri Lanka is recovering from a 30-year war which ended in May and government spending has been kept in check with tax revenues falling.

A deal with the International Monetary Fund (IMF) which limits state spending and borrowings from domestic sources has raised confidence in the economy, generating strong foreign inflows to government securities markets. The Central Bank has been steadily sterilized liquidity. Though excess liquidity in the market had been high credit growth in the banking sector has been negative, keeping inflationary pressures low.