Sri Lanka’s high inflation level which reached 21 percent on an annual average in June, is expected to ease off by August, the Central Bank said this week. The annual average inflation a year ago (June 2007) was 12.8 percent.

In a statement, the Bank said the point to point increase in the Colombo Consumers’ Price Index (CCPI) to 28.2 percent in June from 26.2 per cent was expected since the full impact of fuel price adjustments according to international market prices and consequential railway and bus fare adjustments was felt in the month of June. “With the tight monetary policy package in operation, it is expected that the inflation rate would gradually fall from around August 2008,” it said.

The Bank said reserve money, the operating target of monetary policy of the Central Bank, has been maintained well within the revised tighter target set for the second quarter of 2008. The average reserve money during the second quarter stood at Rs. 283 billion (a growth of 10.7 per cent) compared with the target of Rs. 286.3 billion (a growth of 11.9 per cent).

The strategy of the Bank has been to pursue restrictive quantitative targets continuously by managing liquidity through open market operations and allowing interest rates to adjust appropriately to contain demand driven inflation. This strategy has been successful in containing the reserve money expansion even below the revised target, the statement said.