Sri Lanka inflation rises 9.2-pct in 2012

Dec 31, 2012 (LBO) – Sri Lanka’s inflation rose 9.2 percent to in the 12-months to December 2012 from a year earlier, with the Colombo Consumer Price Index rising 0.9 percent during the month, the state statistics office said. The statistics office said the food sub group in the index from which heavily taxed tobacco and alcohol is excluded rose 9.0 percent during the year, with non-foods rising 10 percent.

In 2011 Sri Lanka’s central bank kept inflation at only 4.9 percent and 6.8 percent 2010, effectively using a de facto peg as an external anchor to monetary policy.

But the central bank also targets the consumer price index (a domestic anchor) by controlling interest rates with liquidity injections, operating a dual anchor system which triggers balance of payments trouble.

In 2011 and 2012 monetary policy was de-stabilized by large volumes of credit taken to subsidize energy tariffs from and heavy sterilized foreign exchange sales eventually caused the rupee to fall from 110 to 134 to the US dollar.

Sri Lanka’s Central Bank is expected to publish its monetary policy roadmap for 2012 on January 02, setting out targets.

In last year’s monetary policy road map, Sri Lanka targeted year-end inflation o