Sri Lanka inflation drops to 5.3-pct in March

Mar 31, 2009 (LBO) – Consumer price inflation in Sri Lanka's capital Colombo dropped to 5.3 percent in the 12-months to March 2009 from 7.6 percent in February, with prices dropping for six straight months, the government's statistics office said. Consumer prices have dropped absolutely from October 2008, when the revised Colombo Consumer Price Index (CCPI) registered 207.2 points.

In October, prices dropped 0.3 percent, in November 0.7 percent, in January 0.3 percent and in February 0.1 percent.

In March the index was at 202.0 points. Average inflation for the past 12-months dropped to 18.6 percent in March from 20.3 percent.

Sri Lanka's central bank said inflation was the lowest seen since January 2004.

The central bank has had tight monetary policy until September 2008, when policy relaxed to defend a dollar peg.

But the earlier tight monetary policy has allowed Sri Lanka to benefit from external deflation coming from the US dollar to which the currency is pegged.

Analysts say liquidity injections since has created suppressed price pressures which may be released in a one-off price structure correction in the economy once the exchange rate adjusts to market determined levels.

The rupee has depreciated from