Central Bank further tightens money supply

The Central Bank, with inflation rising against expected trends, is further tightening its monetary policy by restricting its quarterly targets for reserve money through a downward revision for the remaining three quarters of 2008.

In its monthly monetary policy review, the bank said inflation, as per the New Colombo Consumers’ Price Index, reached 25 per cent in April compared with 23.8 per cent recorded in the previous month while the average inflation also rose to 18.7 per cent.

The core inflation measure, inflation adjusted for increases in food and energy items, increased to 9.4 per cent compared with 9.3 per cent in March 2008.

The bank said that the surge in global inflationary pressures far in excess of expectations caused by the continued high oil prices fuelled by the sharp rise in other commodity prices has passed through to domestic prices causing a substantial increase in domestic inflation worldwide.

Therefore, central banks of all countries have been faced with the challenging task of managing these inflationary pressures, while minimising its harmful impact on the growth momentum of the respective economies. This has also resulted in many central banks revising their original growth and inflation forecasts in line with the global economic situation and tightening their policies in accordance with these projections, the statement said.