Inflation likely to come below 10% in 2023: CB Chief

Central Bank Governor Dr. Nandalal Weerasinghe said the inflation is likely to come down below 10% by the end of 2023, which would also help to gradually bring down the interest rates.

Outlining the rationale for not bringing down the interest rates immediately, he explained to the COPF meeting recently that it was difficult to reduce rates immediately as the impact of previous measures in 2021 was reflecting adversely on the economy last year.

Asked how much money was printed in 2022, the Governor said it was a technical question and the total base money printed in 2021 was Rs. 344 billion, whilst the net basis reserve money issued in 2022 was below Rs. 40 billion.

“Once the base money is issued, the impacts of it is felt by the economy after around 8-10 months and that is what we all witnessed in 2022 with the inflation soaring. In a normal situation, once the base money is issued, it expands by eight folds. However, this time because the interest rates were high, its expansion was minimal as banks were unable to lend at high-interest rates,” he explained.

With the net basis reserve money injected below Rs. 40 billion in 2022, we believe that the inflation will likely come down to below 10% by the latter part of 2023,” he said.

Against the backdrop of the downward inflation rate in September 2022, Dr. Weerasinghe also said it will help to push the interest rates down gradually.