Sri Lanka grapples to maintain inflation target
Sri Lanka’s inflation accelerated recently mainly due to supply side disturbances and the surge in commodity prices internationally while economic growth will also be subdued due to the rise in COVID-19 infections, both globally and domestically .
Inflation as measured by the change in the Colombo Consumers’ Price Index (CCPI) increased to 7.6 per cent in October 2021 from 5.7 per cent in the previous month.
A further acceleration of headline inflation is possible in the immediate future, although such movements are expected to be transitory.
Central Bank Governor Ajith Nivard Cabraal told a media conference in Colombo on Thursday that while foreign exchange reserves had fallen to US$ 2.3 billion at present it will however rise by the end the year to $3.5 billion.
The Central Bank previously announced foreign exchange inflows of $10.85 billion this year including $1 billion bilateral loans, $ 300 million multilateral loans, $300 million syndicated loans, $1 billion from swaps with other central banks and $1.5 billion equivalent Renminbi swap with the People’s Bank of China, which is still to be drawn down.
In addition $4.3 billion is expected from merchandise and service exports and $1.8 billion from workers’ remittances to swell the foreign reserves.
Therefore he said that money to service foreign debt in 2022 is available without any default.
Despite subdued inflows were seen on account of workers’ remittances in recent months, a rebound is expected in the period ahead with the continuous rise in worker migration and efforts taken to facilitate remittance flows through formal channels.
The depreciation of the Sri Lanka rupee against the US dollar is recorded at 7.2 per cent thus far in 2021.
The exchange rate has remained stable at around Rs.200- 203 levels against the US dollar during the past three months, Mr. Cabraal added.
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