Sri Lanka's inflation rate drops to minus 0.7% in October

Sri Lanka's consumer price inflation reached minus 0.7% year-on-year in October after easing to minus 0.2% in September, official data showed on Thursday (21 November), as the island nation continued its economic rebound.

The National Consumer Price Index captures broad retail price inflation and is released with a lag of 21 days every month.

The change was largely driven by a slowing in non-food price inflation that dipped to minus 2.3% in October from minus 0.7% in September, the Department of Census and Statistics said.

Food price inflation rose to 1.3% in October from 0.5% the previous month.

A $2.9 billion International Monetary Fund (IMF) programme, price revisions in fuel and power tariffs, as well as an appreciating rupee have helped lower Sri Lanka's inflation rate, which hit a peak of 70% in September 2022 at the height of a deep financial crisis.

Sri Lanka's inflation is expected to remain well below the central bank's target of 5% this year, analysts said.

"We may see the central bank look to reduce interest rates further next week since inflation is likely to stay low for another quarter," said Shehan Cooray, head of research at Acuity Stockbrokers.

The Central Bank Sri Lanka (CBSL) cut interest rates by 25 basis points in July as part of an easing cycle that has seen rates drop by a total 7.25 percentage points since June 2023, partially reversing the 10.50 percentage points of increases following the financial crisis.

The next policy rate announcement will be next Wednesday.

Sri Lanka expects the IMF to announce a staff-level agreement on its third review of the country's bailout programme on Friday, President Anura Kumara Dissanayake told the first sitting of the new parliament.

Once IMF executive board approval is given, a further tranche of about $337 million in funds is expected to be released to Sri Lanka.