Interest rates lifted amidst high inflation

Measures to tackle rising inflation are underway under steps recommended by the Central Bank, the regulator said this week.
The Bank said it raised concerns relating to rising inflation at the last National Economic Council (NEC) meeting chaired by President Mahinda Rajapaksa. Following this the Secretary to the President issued instructions to the relevant ministries to take action as recommended by the Central Bank to address this issue.

“Accordingly, the Ministries of Finance, Trade, Petroleum Resources, and Ministry of Power and Energy are now due to implement certain policy initiatives to contain price levels, and the combined effect of the measures to be taken by these ministries and others, are expected to bring down inflation to the targeted level by end 2007, while not retarding the economic growth momentum,” the statement said.

Inflation, as measured by the point to point change in the Colombo Consumers’ Price Index (CCPI), has been on a rising trend since April 2006 reaching 19.3 per cent in December 2006 and increasing further to 20. 5 per cent last month. “Such a trend has been as a result of both the demand and supply side factors. The annual average inflation has also increased from 13.7 per cent in December 2006 to 14.8 per cent in January 2007,” it said.

In view of these inflationary pressures, the Monetary Board decided to increase the Repurchase and Reverse Repurchase rates by 50 basis points each, to 10.5 per cent and 12 per cent, respectively with effect from February 23.

“In addition, the Central Bank will continue to conduct aggressive open market operations to maintain market liquidity at an appropriate level to meet the pre-determined reserve money targets. Further, in order to ensure that the monetary and inflation targets are met, the Central Bank has established a monitoring mechanism for key variables in the fiscal, external and monetary sectors. This too will facilitate the identification of any deviations from the desired path enabling the relevant authorities to take necessary corrective measures at an early stage,” it said.