Sri Lanka Inflation Slows, Providing Scope to Support Growth

Sri Lankan inflation slowed in November to a 16-month low, providing scope for the central bank to refrain from raising interest rates and shield growth from the faltering global economy.

Consumer prices in the capital, Colombo, climbed 4.7 percent from a year earlier after gaining 5.1 percent in October, the Department of Census and Statistics said on its website today. The median of five estimates in a Bloomberg News survey was for a 4.4 percent increase.

Central Bank Governor Ajith Nivard Cabraal said Nov. 29 that Sri Lanka will probably refrain from rate cuts for the rest of 2011 even as it has room to lower borrowing costs, as this month’s 3 percent currency devaluation revives price pressures. He has left rates unchanged for 10 months as Asian nations from Thailand to Indonesia take fiscal or monetary stimulus steps to counter the threat to exports from Europe’s debt crisis.

“Sri Lanka needs to balance growth and inflation,” said Bimanee Meepagala, a Colombo-based analyst at NDB Aviva Wealth Management Ltd., the nation’s biggest non-state fund. The island “shouldn’t cut rates as it could have a spiraling effect on credit growth.”

The central bank on Nov. 16 kept its reverse repurchase rate at 8.5 percent and the repurchase rate at 7 percent. The next monetary policy announcement is scheduled for Dec. 20.

The Sri Lankan rupee was little changed at 113.91 a dollar as of 2:09 p.m. local time, according to data compiled by Bloomberg. The benchmark Colombo All-Share Index of stocks advanced 1.1 percent at the close today.

Higher food supplies since the end of the island’s civil war in May 2009 and a 0.5 percent rise in Sri Lanka’s rupee against the dollar in 2011 until the devaluation had helped curb price gains, according to the central bank.

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