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Sri Lanka’s inflation hits 19.8% as Central Bank credit climbs to Rs 100 bn

November 30, 2006 (LBO) – Consumer prices in Sri Lanka shot up to 19.8 percent in November from 17.2 percent in October, the Census & Statistics Department said Thursday, as Central Bank credit to government climbed to 100 billion rupees, and real interest rates were pushed further into negative territory.

Economists had been predicting that inflation would continue to rise despite falling oil prices because of excessive money printing to finance the budget deficit.

In November alone the index rocketed by 4.4 percent, driving 12-month inflation sharply up.

According to the latest data, Central Bank credit to government rose to 103.6 billion in September (almost a billion US dollars), with about 60 billion coming via money printed for Treasury bill purchases and the rest through accumulated direct advances from the monetary authority.

Under Sri Lankan laws, the Central Bank can be asked to print up to ten percent of the estimated revenues and hand it over to the government.

In February, Central Bank credit to government was only 61.9 billion.

Critics had been warning that the massive volumes of printed money would put pressure on the balance of payments and send inflation up.

On a 12-month moving average, inflation for November was 12.7 percent from 11.8 percent recorded

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