Strong currency, high rates help slow Sri Lanka’s inflation

SRI Lanka’s inflation eased in April amid a higher borrowing rate and a stronger local currency that helped reduce import costs.

Consumer price index in Colombo rose 35.3 per cent from a year ago, the Statistics Department said in a statement on Friday (Apr 28). That compares with a 50.3 per cent rise in March based on a revised index, and Bloomberg’s survey estimate of a 37.8 per cent gain.

The latest reading suggests the Central Bank of Sri Lanka’s efforts to reach single-digit inflation by the end of this year is bearing some fruit. The monetary authority earlier this month held its benchmark rate at a two-decade high to keep Asia’s fastest inflation in check and support economic recovery after the nation secured a US$3 billion International Monetary Fund (IMF) bailout.

The IMF loan is unlocking more funding for the South Asian nation which faced its worst economic crisis since independence with a default in sovereign bonds as well as shortages in US dollars and essential items. Improving investor sentiment after the funding has supported the local currency, helping the nation boost imports of food and fuel.

Food prices rose 30.6 per cent in April from a year ago, slower than 47.6 per cent in March, while transport inflation was up 32.3 per cent, significantly lower than 72.7 per cent in the previous month, reflecting impact of cut in fuel prices.

The Sri Lankan rupee has strengthened from its record low in May to emerge as the world’s best-performing currency this year, according to data compiled by Bloomberg. Tourism is also helping fuel the recovery.

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Sri Lanka pushes debt restructuring presentation to mid-May

There are some roadblocks though, particularly with Sri Lanka’s push to expedite a debt restructuring plan that would be crucial to unlock funds under the IMF programme.

In the latest setback, the government has pushed back the release of its debt overhaul plan to the middle of May. It is seeking to avoid talks that include pre-conditions amid demands from its foreign bondholders and reluctance from some local banks to participate in the restructuring, President Ranil Wickremesinghe said on Wednesday. BLOOMBERG