Sri Lanka’s Inflation Slows to 5.1%, Lowest Level in 14 Months

Sri Lanka’s inflation slowed to the lowest level in 14 months, giving the central bank scope to keep interest rates unchanged and support growth.

Consumer prices in the capital, Colombo, increased 5.1 percent in October from a year earlier after gaining 6.4 percent in September, the Department of Census and Statistics said on its website today. The median of five estimates in a Bloomberg News survey was for a 5.6 percent advance.

Sri Lanka needs to ensure that inflation remains “under control,” central bank Governor Ajith Nivard Cabraal said last week, signaling he isn’t yet ready to cut rates. Cabraal has left borrowing costs unchanged for nine straight months, joining Asian nations from Malaysia to the Philippines in holding rates, as a weaker global recovery threatens the region’s exports.

“The central bank has room to maintain status quo on rates with inflation in check,” Sanjeewa Fernando, an analyst at CT Smith Stockbrokers Pvt. in Colombo, said before the release. “The monetary authorities will want to ensure that the momentum in the domestic economy is sustained amid global uncertainties.”

The Sri Lankan rupee fell 0.2 percent to 110.2 per dollar as of 3:10 p.m. in Colombo, according to data compiled by Bloomberg. The benchmark Colombo All-Share Index of stocks declined 0.5 percent at the close today.

Civil War

Higher food supplies since the end of the island’s civil war in May 2009 and a 0.7 percent appreciation in the Sri Lankan rupee against the dollar since Jan. 1 have helped curb price gains, according to the central bank.

Inflation may come under pressure after state-owned Ceylon Petroleum Corp. raised gasoline prices by 12 rupees (10 U.S. cents) a liter and diesel prices by 8 rupees a liter yesterday, while Lanka IOC Plc increased its rates to match Ceypetco’s pump prices.

Sri Lanka’s $50 billion economy may expand 8.3 percent this year, faster than the 8 percent growth in 2010, as tourists flock to the Indian Ocean island and investment climbs after the civil war, the central bank estimates.

The central bank on Oct. 10 kept its reverse repurchase rate at 8.5 percent and the repurchase rate at 7 percent. The next monetary policy announcement is scheduled for Nov. 8.

To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net

To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net