Inflation curbed by govt. fuel subsidy introduction and surcharge on vehicle import tax – CBSL Governor

The government's introduction of a fuel subsidy and surcharge on vehicle import tax has significantly reduced inflation, according to Central Bank Governor Dr. Nandalal Weerasinghe. The Central Bank approved a new Rs. 40 billion fuel subsidy for the next three months, in addition to the previously provided Rs. 57 billion between April and June.

Furthermore, the government imposed a temporary 50% surcharge on Customs Import Duty for new personal vehicles, which will remain in effect until December 31. Weerasinghe stated that without these measures, inflation would have been higher than the current level.

The country's inflation reached a 37-month peak of 8% in August due to a more than 50% increase in fuel prices following the Middle Eastern escalation in late February. The Central Bank's inflation target has been 5% with a lower band of 3% and an upper band of 7% for the past three years. Weerasinghe emphasized the importance of these government measures in preventing outflows of foreign currency and controlling demand-driven inflation.

The Central Bank also raised its key monetary policy rate by 100 basis points in May to curb excess demand in the economy.

Economic Research Department head L.R.C. Pathberiya noted that credit growth slowed to 24.5% year-on-year in August from a higher 30% a few months ago, following the Central Bank's monetary policy tightening in May. However, the Central Bank remains optimistic about the current credit growth, as the credit to the private sector from commercial banks has slowed but is still sufficient for economic growth. Pathberiya added that the nation's economic growth slowed to 4.2% year-on-year, its lowest in 11 quarters.