Sri Lanka inflation accelerates to 9.8-pct in April

Apr 29, 2011 (LBO) – Consumer prices in Sri Lanka’s capital Colombo rose 9.8 percent in April from a year earlier, accelerating from 8.6 percent in March, data from the government’s statistics office data showed. But excess liquidity remains close to 100 billion rupees, or about a third of the money officially defined monetary base.

Despite the excess liquidity, official data show debt monetization activities.

Sri Lanka is also pegged to the US dollar and dollar weakness is also affecting traded goods.

State borrowings from the banking system rose 41 billion rupees in February. In the month of April food prices fell 1.7 percent but non-food items rose at a faster 2.0 percent, measured by the Colombo Consumer’s Price Index. The index gained 0.1 percent in the month.

Sri Lanka’s central bank has warned that the index would rise in April before easing off, due to transient effects of floods, but there has been concern about the rise of non-foods in the index amid excess liquidity in money markets and high credit growth.

In April the Central Bank raised reserve ratios by one percent to curb credit and withdraw some excess liquidity.