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Sri Lanka’s Inflation Surges for Second Consecutive Month, Driven by Energy Tariff Hikes

In November, Sri Lanka witnessed a persistent surge in inflation for the second successive month, primarily propelled by the escalation of energy tariffs crucial for upholding the International Monetary Fund’s $3 billion bailout.

The statistics department in Colombo revealed a 3.4% year-on-year spike in the consumer price index, surpassing the anticipated 3.0% increase indicated by a Bloomberg survey. This acceleration contrasts sharply with the 1.5% uptick noted in October.

This inflationary surge coincides with Sri Lanka’s recent agreement to restructure approximately $5.9 billion of its debt with key creditors, including India and the Paris Club. This pivotal move is anticipated to facilitate a $330 million loan disbursement from the IMF board in December. In alignment with the conditions of the loan bailout, authorities raised electricity tariffs.

Sri Lanka’s central bank, in response to these economic dynamics, signaled a temporary halt after reducing interest rates for the fourth time this year. Governor Nandalal Weerasinghe conveyed to Bloomberg earlier in the month that once the uncertainties surrounding debt restructuring dissipate, the pace of monetary policy transmission will accelerate, allowing the policy measures to permeate through the economy effectively.

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