The Central Bank said it will introduce certain tough measures to bring down the inflation rate to single digits, noting that the 15.1% recorded in February is concerning.
“We have been taken by surprise with the sharp increase in inflation. As you know it has increased beyond our normal norm, while the 13-years of single digit record has been broken and we are concerned about it,” the Central Bank Governor Nivard Cabraal said at the post-Monetary Board Meeting on Friday.
“We must also give signals to the country and the economy that we want to address inflation as a key factor in our economy,” he said, adding that the Central Bank bears responsibility to ensure that there is price stability and to some extent it has been damaged.
Indicated by the Colombo Consumer Price Index and National Consumer Price Index, inflation stood at 14.2% and 16.8% respectively YoY for the month of January alone. Inflation in the month of February further edged up to 15.1% YoY.
He said to ensure that the inflation is brought back with certain tough measures, whilst also taking other steps, that it does mean in adjustments within interest rates only.
This way, he believes there is greater opportunity of bringing stability back and addresses to a great extent the inflationary pressures at present.
However, the Governor said it is mainly driven by external factors, expressing that they will see it happening even in the future because of the sharp increase in the global oil prices.
“With high oil prices there could be freight and flight charges going up and there would be more charges going up in sympathy as well. Recognising it, we want to ensure that at least the demand-driven inflation is kept in check. So that we are in a position to deal with this situation a little better. It a policy decision that has been thought and brought in very carefully,” he explained.
He also said that the Central Bank believes the signal itself will anchor certain inflation expectations.
“We want to convey that if the inflation were to rise, we are compelled to take those steps,” Nivard added.
(FT)