Sri Lanka inflation to fall ahead of region: CB Governor

July 08, 2008 (LBO) – Sri Lanka’s inflation would head down faster in the coming months as its monetary authority had started a tightening cycle earlier than the region, Central Bank Governor Nivard Cabraal said. “We are one of the few countries to start tightening early,” Governor Cabraal said. “We will also see results earlier.”

He said Indian inflation was still rising. India’s wholesale price index rose to 12.01 percent in the week to July 26, up from 11.98 percent a week ago.

But Sri Lanka starts from a much higher base.

In July Sri Lanka’s 12-month inflation measured by the widely watched Colombo Consumer Price Index fell to 26.6 percent from 28.2 percent in June.

Sri Lanka’s central bank no longer runs a policy rate environment but operates a quantity targeting framework where the monetary base or reserve money is targeted while maintaining a peg with the US dollar in the form of an external anchor.

The monetary authority has not raised policy rates since February 2007, but in July it announced a further tightening of money targets.

The central bank said it would allow reserve money to grow by only 11.75 percent in the 2008 calendar year, down from a 12.50 percent t