Weak rupee, bad weather won’t affect inflation: CB

Reuters: Sri Lanka’s recent adverse weather and weakening rupee currency will have little impact on inflation, Senior Deputy Central Bank Governor Nandalal Weerasinghe said on Thursday.

The rupee has fallen 3% against the dollar so far this year and recent heavy rains that caused floods, killing 24 people, have hurt some agricultural sectors especially the island nation’s main export crop tea.

“A 1% rupee depreciation will cause a 0.2% rise in inflation. That is the full impact from the historical data,” Weerasinghe told Reuters. Sri Lanka’s 2017 import bill of $21 billion accounted for nearly a quarter of the country’s Gross Domestic Product.

Central Bank Governor Indrajit Coomaraswamy early this month said the rupee would depreciate gradually as dollar outflows surpass inflows.

Annual inflation in April has eased to a two-year low of 3.8% from a record high of 7.8% in October. Last year’s floods and intermittent drought drove inflation above the central bank’s upper target limit of 6% and cut economic growth to a 16-year low in 2016.

“I don’t see any impact from the adverse weather as it is just the start of the cultivation season,” Weerasinghe said.

“It could be positive because agriculture will come back to normal with the rains and hydro power generation also could be improved.”