Inflation likely to hit 40% in a few months: Sri Lanka's central bank

Holds interest rates, says it will take at least six months to repay debts

Inflation could rise to a staggering 40 per cent in the next couple of months, but it was being driven largely by supply-side pressures and measures by the country’s central bank and government were already reining in demand-side inflation, the central bank’s Governor P Nandalal Weerasinghe said on Thursday.

Inflation hit 29.8 per cent in April with food prices up 46.6 per cent year-on-year.

He said the central bank has secured foreign exchange to pay for fuel and cooking gas shipments that will ease crippling shortages.

He was speaking after the central bank held interest rates steady at a policy meeting, citing a massive 7 percentage point increase in April that it said was working its way through the system.

The country was more politically and economically stable, Weerasinghe said, adding that he would stay on in his post. He told reporters on May 11 he would resign in two weeks in the absence of political stability as any steps the bank took to address the economic crisis would not be successful amid turmoil.

Sri Lanka will take at least six more months to start repaying its debts, the central bank said Thursday as the government shut schools because of fuel shortages.

Meanwhile, central bank held borrowing costs steady as it waits for previous tightening to filter through the economy, which is currently experiencing Asia’s fastest inflation and sliding further into a debt crisis.

The Central Bank of Sri Lanka held its benchmark standing lending rate at 14.5 per cent on Thursday. Three out of eight economists in a Bloomberg survey expected a hold, while five forecast hikes of up to 300 basis points.

21st Amendment

PM Wickremesinghe plans to present the key 21st Amendm­ent to the Constitution before the Cabinet next week, after holding wide-ranging discussions with the Attorney General and top lawmakers, a media report said on Thursday.

The 21st Amendment is expected to annul the 20A in the Constitution, which gives unfettered powers to President Gotabaya Rajapaksa after abolishing the 19th Amendment that will strengthen Parliament.

MPs Wijeyadasa Rajapa­kshe and Susil Premajayantha will examine the clauses of the 21st Amendment, and will finalise an updated version of the 19th Amendment before presenting it to the Cabinet next week, Daily Mirror reported.

Lowers limit of foreign currency people can hold to $10k from $15k

Sri Lanka’s central bank on Thursday decided to substantially lower the limit of foreign currency a person can hold to $10,000 from $15,000 and said it will crack down on those possessing them for over three months as the island nation faced its worst economic crisis.

The move by the Central Bank comes amid a severe shortage of foreign currency that has resulted in difficulties in paying for the import of essentials such as fuel, cooking gas, medicine and food, forcing people to stay in long lines to buy the limited stocks. (PTI).