Sri Lanka’s central bank expect inflation to drop to 7% in July

The Central Bank of Sri Lanka says inflation is expected to come down to a 7 percent level in July 2023, an official said on Thursday (06 July).

“The headline inflation is expected to decline further and stabilize around mid-single-digit level or the medium term, and in July, this month, we expect inflation to return to single-digit level, about 7% level”, Director of Economic Research at CBSL Dr. P. K. G. Harishchandra  told reporters in Colombo.

Speaking with regards to the country’s inflation as a whole, Dr. Harishchandra stated that while disinflation continues, the core inflation for the month of June was reported at 9.8%, which, for the first time in a few years, was a figure below 10%.

He further pointed out that this disinflation has been supported by all major categories, including food and energy inflation.

Sri Lanka’s headline, core, food and non-food inflation was reported at 69.8%, 50.2%, 94.9% and 57.6%, respectively, in September 2022, while in June 2023, they were 12.0%, 9.8%, 4.1% and 16.2%, in that order.

Comparing this outcome with the quarterly projection forecasted in April 2023, Dr. Harischandra highlighted that disinflation has occurred faster than initially expected over the last three months, mainly due to the falling food and energy inflation.

Thus, he noted that as per the revised quarterly projection, inflation is expected to return to mid-single-digit levels in the medium term.

He further assured that ongoing disinflation will be supported by several other factors, including the lagged impact of tight monetary and fiscal policies, the expected softening of energy and food prices and their spillover effects, the possible re-pricing of goods and services in light of the exchange rate appreciation and a favourable statistical base effect.

Meanwhile, commenting on the recent decision made by CBSL’s Monetary Board to further reduce policy interest rates, CBSL Governor Dr. Nandalal Weerasinghe emphasised that all necessary regulatory action will be taken in the event banks fail to pass on the benefits of the interest rate reductions to the public.

Earlier today, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank was reduced by 200 basis points (bps) to 11.00 percent and 12.00 percent, respectively.