Headline inflation in Sri Lanka is anticipated to reach 70% in the next few months. The Governor of the Central Bank of Sri Lanka, Dr. Nandalal Weerasinghe, predicts that from its present level of 50%, headline inflation in Sri Lanka, it will increase to 70% in the upcoming months.
His comments were made at a press conference held in Colombo to discuss the Central Bank’s fifth review of monetary policy for 2022.
From the perspective of the Central Bank, addressing inflation and inflation expectations moving forward and bringing it down to an acceptable level as soon as possible are the main concerns and priorities.
No one will be able to continue operating businesses if inflation spirals out of control into a hyperinflation scenario, he continued.
The Monetary Board of the Central Bank raised policy interest rates again on Wednesday (July 6), with the goal of reducing inflationary pressures and guaranteeing macroeconomic stability going forward.
As a result, a 100 basis point increase was made to the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR). correspondingly 14.50 points and 15.50%.
In making that decision, the Monetary Board balanced the long-term negative effects of any near-term escalation of price pressures across all sectors of the economy against the impact of tighter monetary conditions on overall economic activity, including the performance of micro, small, and medium-sized enterprises, and the financial sector, among others.
The Central Bank reports that in June, overall inflation reached a record high of 54.6%, primarily due to increases in prices for non-alcoholic beverages, food, transportation, and restaurants and hotels. Inflation in the food sector as a whole was 80.1 percent in June, compared to 42.4 percent in the non-food sector.
The Central Bank also noted that domestic supply-side disruptions, the impact of domestic energy and food price increases and their passthrough to domestic prices, the depreciation of the rupee, tax adjustments, and the lagging effects of monetary accommodation were the main causes of the unprecedented high-level acceleration in headline inflation.
Up until the end of this year, headline inflation will increase somewhat; however, a considerable decrease is anticipated to begin at the beginning of 2023. By 2025, headline inflation will have reached the medium-term level of 46%.
The Central Bank reaffirmed the requirement that prompt and adequate policy adjustments by the government, particularly the urgent implementation of fiscal consolidation measures, be made in addition to efficient and effective social welfare programs to support the society’s most vulnerable segments.
A staff-level agreement on the Extended Fund Facility (EFF) arrangement has come close to being reached in the negotiations with the International Monetary Fund, according to the Central Bank.
At the end of June, it was announced that Sri Lanka’s gross official reserves—including the swap facility from the People’s Bank of China, which is equal to USD 1.5 billion—were projected to be USD 1,859 million.