Sri Lanka’s Inflation Accelerates to Asia’s Fastest on FX Crunch
Posted on February 1st, 2022

Anusha Ondaatjie, 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.

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.

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