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Sri Lanka May Inflation Rate Accelerates to a Nine-Month High

May 31 (Bloomberg) -- Sri Lankan inflation accelerated to a nine-month high in May, fanned by currency weakness that makes imports costlier.

Consumer prices in the capital, Colombo, increased 7 percent from a year earlier after gaining 6.1 percent in April, the Department of Census and Statistics said on its website today. The median of seven estimates in a Bloomberg News survey was for a 6.5 percent advance.

Sri Lanka kept interest rates unchanged this month after two increases in 2012 as part of an economic policy overhaul that seeks to damp import demand, narrow the trade gap and protect foreign reserves. The island has also raised fuel prices to curb inward shipments of oil and moved to a more freely floating exchange rate under which the rupee has declined.

“Interest rates are likely to rise further due to continued credit expansion and to bring stability in the currency,” Sanjeewa Fernando, an analyst at CT Smith Stockbrokers Pvt. in Colombo, said before the release.

The island’s rupee has strengthened about 0.7 percent since touching 133.10 per dollar on April 25, its lowest level. The rupee was at 132.23 per dollar as of 3:28 p.m. local time. The Colombo All-Share Index of stocks closed down 0.7 percent.

The government raised cement, milk powder and liquefied gas prices in early May. Inflation will remain in “single-digit” levels this year even as “high and volatile” food and energy costs add to uncertainty, the central bank said last month.

Governor Ajith Nivard Cabraal said May 8 average inflation may accelerate to 7 percent in 2012. He has forecast 7.2 percent economic growth this year.

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

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