(Bloomberg) – Sri Lanka’s 70% inflation is hitting its peak as crippling shortages ease and bailout funds look within reach, yet it’s far from putting the central bank governor at ease.“We think we are seeing the peak of inflation,” central bank governor Nandalal Weerasinghe said in an interview in Colombo on Thursday. “There’s still some way to go,” he said on fixing the island nation’s economy and its finances.The governor, a career central banker who six months ago raised the policy rate by a staggering 700 basis points as among his first acts to stabilize a nation rocked by a debt crisis, said the monetary authority’s rate decisions will remain data driven and forward looking.
The central bank has paused after 9.5 percentage points of hikes this year that took the key rate to 15.5% as inflation bolted to become Asia’s fastest.“It will be turning around and if that is lower in October, as we expect, then we can see that trend will continue,” he said of the price gains.“We need to assess not only the inflation number, but the outlook – the expectations, monetary expansion, the growth outlook and also level of reserve and exchange rate policy,” Weeransinghe said on the policy rate, giving no clue whether the central bank will go on an extended pause on rates.The government has made some progress in restoring the health of the $81 billion economy, with basic goods like food and fuel becoming more available while authorities relentlessly pursue debt restructuring.
A deal with creditors is key to receiving the International Monetary Fund’s $2.9 billion bailout, and unlock more funding. Sri Lanka plans to engage again with lenders within the next two weeks to seal a deal that would make debt sustainable.