Dec 19, 2008 (LBO) – Sri Lanka’s inflation is falling faster than expected, the Central Bank said, as a global collapse in commodities washed into the country and the country’s money growth was also kept in check. Sri Lanka’s central bank targets the monetary base, which is expected to influence growth in other monetary aggregates, as a means to keep inflation in check.
Analysts have warned that the practice is fraught with conflicts, because a de facto dollar peg is also in place.
The central bank said broad money supply growth fell to 9.8 percent in October compared to 16.6 percent for the end of 2007. Inflation in November fell sharply to 16.3 percent from 20.2 percent in October.
“The sharp deceleration in the monetary aggregates, together with recent favourable developments in relation to international commodity prices are expected to bring down inflation at a rate faster than previously expected,” the Central Bank said in a statement.
“Further deceleration in inflation would help investors as well as consumers in their effective decision making process, improving the growth outlook for the economy.”
The monetary authority was earlier expecting inflation to fall to 20 percent by year