Sri Lanka central bank warns of higher inflation in July

July 23, 2007 (LBO) – Sri Lanka’s central bank has warned of higher inflation in July as authorities started to apply brakes on rising interest rates by expanding domestic assets of the banking system. Analysts say the reserve outflow, which is believed to be fiscally induced, picked up pace further in early July.

Sri Lanka’s inflation fell in the first half of the year as the central bank tightened monetary policy, but monthly inflation rose 3.0 percent in May and 3.2 percent in June which analysts have pointed out is higher than the annual inflation rate in most countries.

Inflation Risk

The 12-month point to point-to-point rate continued to move down to 13.0 percent in from 13.7 percent in May.

But in its July monetary policy statement the Central Bank warned that “there is a risk that the point-to-point inflation in July may increase temporarily” indicating that the Colombo Consumer Price Index, Sri Lanka’s most widely watched index, is set spike again this month.

Inflation data is released on the last working day of the month.

The Central Bank says a downward trend in inflation “is expected to continue thereafter”, and the tight monetary policy stance adopted