Sri Lanka central bank gives up on low inflation for 2008

Jan 02, 2007 (LBO) – Sri Lanka’s central bank has given up achieving low inflation in 2008 with Governor Nivard Cabraal saying that the bank may allow consumer inflation to go as high as 14 percent this year. . However, Cabraal said his institution would try to keep consumer inflation at around 10 to 11 percent but – in an unusual move for a central bank – made the target conditional.

“Let us also remind ourselves of the risks that may be encountered by us when we are pursuing our tough targets,” Cabraal said delivering the bank’s key policy speech that contains a road map for 2008.

He said the institution was constrained by actions of external agencies and oil prices. If oil prices ‘increased’ to 90 dollars from a baseline forecast of 85 dollars a barrel, the economic shock could cause economic growth could fall.

“Under such circumstances, the year-end inflation may settle at a higher level of around 12-14 per cent,” Cabraal said.

This year the bank is using a Colombo Consumer Price Index (CCPI-N) which has less food in it.

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