Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe has warned that the country’s inflation rate could rise to 7% if the Middle East conflict and the resulting climb in global fuel prices continue.
Speaking on the “360” programme on TV Derana on Monday night (1), the Governor said the conflict, initially expected to be short-lived, had instead dragged on and was now feeding through into the local economy. Fuel prices have continued to climb while consumer demand has held up, putting steady upward pressure on prices.
“There is a risk that inflation could move beyond 5% and even reach 7% if these conditions persist,” Dr. Weerasinghe said. Headline inflation is currently projected at around 5.4% to 5.5%, near the upper end of the CBSL’s 3% to 7% target band, after Colombo consumer prices rose 5.5% in May.
He said the Central Bank had recently tightened monetary policy as a precautionary measure to curb inflationary pressures, and that demand would need to ease over the coming months to keep inflation from accelerating further.
The Governor’s warning underscores the cost the Middle East war is imposing on Sri Lanka’s fuel import bill, with Brent crude jumping again after Iran suspended indirect US talks and renewed Hormuz closure threats this week.
Dr. Weerasinghe also said there were no restrictions on remitting legally earned funds to Sri Lanka through formal banking channels, provided they complied with anti-money laundering rules. Funds obtained through illegal means, he added, would continue to face legal and regulatory obstacles.
