Lanka Inflation Hits Multi-Year High

Sri Lanka’s inflation hit 7.3% in the 12-months to March 2017, the highest seen the 2012 currency collapse, data from the state statistics office show, as the rupee depreciated steadily amid stronger global commodity prices, economynext reported. The Colombo Consumer Price Index rose steadily from October 2016 climbing from 112.1 points to 116.7 points in March 2016, data from the Department of Statistics show. The index however fell 0.2 points in March to 116.5 points. The twelve month moving average of the index, a lagging indicator averaged across two years continued to move up to 5% from 4.6%. Sri Lanka’s inflation goes up primarily because the country has a soft-peg or what some economists call a half-baked currency, where the central bank tries to target both the interest rate and exchange rate (buying dollars to build forex reserves), leading to currency crises. The central bank typically delays interest rate hikes by printing money when the credit cycle turns and government or private credit or both picks up. Last week the central bank hiked policy rates by 0.25% to 8.75%.