Sri Lanka’s Inflation Accelerates to Asia’s Fastest on FX Crunch
Posted on February 1st, 2022
, Courtesy Bloomberg News
Pedestrians and shoppers at Pettah Market in Colombo, Sri Lanka, on Thursday, Dec. 16, 2021. Sri Lanka’s gross domestic product unexpectedly contracted last quarter, adding a new layer of challenge to the economy facing default risks. , Bloomberg
(Bloomberg) — Sri Lanka’s inflation rate surged past Pakistan to make it the fastest in Asia, stoked by failed harvests, import restrictions to conserve dwindling foreign-exchange reserves, and high global prices of key commodities.
Consumer prices rose 14.2% in January from a year earlier, faster than the median estimate of 13.2% in a Bloomberg survey. The average annual inflation rate rose to 6.9%.
Quickening prices pushed the central bank to raise its main interest rate for the first time in three meetings this month. The island nation’s foreign reserves were about $3.1 billion in December, with almost $7 billion of overseas debt due for repayment in 2022.
President Gotabaya Rajapaksa’s administration announced a $1 billion relief package this month, raising salaries of government employees and offering farmers compensation for failed crops in a bid to temper public anger over surging prices of food and medicine.
Sri Lanka’s cabinet has also approved importing rice from India to cool prices. It is seeking a debt restructuring from China — its biggest creditor — after drawing down a $1.5 billion Chinese swap line and securing another $400 million facility from India.
Pakistan reported a 12.3% inflation rate in December, which could rise to 13% this month, according to a Bloomberg survey.