Sri Lanka’s inflation accelerated in July, adding pressure on the central bank to raise interest rates in the South Asian nation. Consumer prices in the capital, Colombo, climbed 7.5 percent from a year earlier after gaining 7.1 percent in June, the statistics department said on its website today. Central Bank Governor Ajith Nivard Cabraal has refrained from increasing rates since 2007 to spur economic growth, judging that rising food supplies and currency gains will help cool inflation. By contrast, Asian nations from India to Thailand have boosted borrowing costs to damp price gains. “Policy makers will have to rethink and consider whether tightening rates would be detrimental to growth,” said Sanjeewa Fernando, an analyst at CT Smith Stockbrokers Pvt. in Colombo. “Inflation isn’t showing signs of easing.” The Sri Lankan rupee has gained 1.3 percent since Jan. 1 and was trading at 109.49 against the dollar at 3:09 p.m. in Colombo. The Colombo All-Share Index rose 2.9 percent today. The inflation rate in Sri Lanka has remained above 7 percent since February. Cabraal on July 8 left the central bank’s benchmark reverse repurchase rate at 8.5 percent and the repurchase rate at 7 percent for the sixth straight month to boost a recovery in the economy after the end of a 26-year civil war in 2009. In April, the central bank ordered lenders to keep aside more cash as reserves, increasing the statutory reserve ratio to 8 percent from 7 percent. Growth Forecast Cabraal forecasts economic growth will accelerate to 8.5 percent this year from 8 percent in 2010. The central bank said July 8 inflation may ease in the coming months aided by higher food supplies. Sri Lanka would be comfortable with inflation of 4 percent to 6 percent, and price gains may moderate closer to 6 percent by the end of 2011, Cabraal said in June. Sri Lanka’s next monetary policy announcement is scheduled for Aug. 19. The Reserve Bank of India on July 26 increased the repurchase rate to 8 percent from 7.5 percent, while the Bank of Thailand raised borrowing costs on July 13. To contact the reporter on this story: Anusha Ondaatjie in Colombo at anushao@bloomberg.net To contact the editor responsible for this story: Hari Govind at hgovind@bloomberg.net

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