May year-on-year inflation to cool below April’s 9.8% - CB Chief

(Reuters) - Sri Lanka’s May annual inflation will be lower than April’s 9.8 percent due to moderating supply side pressure, Central Bank Governor Ajith Nivard Cabraal said on Tuesday.

Annual inflation hit a 27-month high last month mainly due to high commodity prices locally after flooding in January and February damaged crops, and globally due to high oil prices.

“It will be substantially lower than last month’s 9.8 percent,” Cabraal told Reuters. “The supply side has moderated quite a bit.”

Aiming to spur economic growth to a record 8.5 percent this year, the Central Bank has kept interest rates at their lowest levels in six years.

Some economists have encouraged the Central Bank to raise rates to counter supply-side and demand-side inflation threats.

The Central Bank raised commercial banks’ statutory reserve ratio by 1 percentage point to 8 percent in March to squeeze liquidity aiming to curb any possible demand driven inflation.

Private sector credit growth has been hovering around 30 percent in February and K.D. Ranasinghe, the Central Bank's chief economist, said it is now decelerating.

“It has significantly decelerated and it will decline to below 25 percent by the end of the year,” he said.

When asked about May annual inflation, Ranasinghe said it will be ‘below 9 percent’, without elaborating further.

May official inflation figures may be the last numbers compiled under 2002-based index as the Department of Census and Statistics is planning to introduce a new index based on 2006/7 consumer surveys from June.