CB sees 2014 inflation slowing to 4-6% if no shocks
Monday, 4 November 2013 00:00
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Reuters: Sri Lanka’s inflation rate next year should slow to between 4% and 6% unless there is a major supply shock, its Central Bank Governor said on Friday.
For this year, it is expected that inflation will be around 7%. In October, the annual pace rose to a four-month high of 6.7%, though core inflation, which excludes food and energy, hit a record low 2.6%.
Central Bank Governor Ajith Nivard Cabraal told Reuters that headline inflation “next year should be in the mid-single digits”, adding that this meant 4-6%.
Cabraal’s comments come a day after the government data showed annual inflation rising to a four-month high in October, while 12-month moving average inflation easing to a 10-month low. October core inflation hit a record low.
The Central Bank last month cut key policy interest rates by 50 basis points to multi-year lows in a move to spur economic growth, just three weeks after the International Monetary Fund advised it to hold rates steady.
Private sector credit growth has been sluggish and the latest official Central Bank data showed a 7.9% growth year-on-year in August, slowing from 8.4% the previous month and 28.7% a year ago.
The Central Bank has said the rate cut would not have an impact on inflation. Cabraal said inflation should moderate by the end of the year “because the money growth is under control, well within the range we had expected.”
Sri Lanka, which saw economic growth slump to a three-year low of 6.4% last year, expects the 2013 pace to be more than 7%.
Investors have been worried of the rupee, which hit a record low of 135.20 per dollar on 28 August after some foreigners started to withdraw their funds from the Sri Lankan Government bonds.
But with inflows from corporate bonds and foreign buying of equities, the trend reverse and the central bank had been buying dollars to prevent sharp appreciation. The rupee hovered near a one-week high of 130.85/90 in early Friday trade.
Cabraal said he expects the rupee could come under pressure due to importer dollar demand, for consumer-related goods ahead of the December festival season.
“There may be a few bit of importer (dollar) demand in the next few days. But even what is needed for the importer demand is also coming out of the market itself without much intervention,” he said.
