Sri Lanka's central bank aims to start inflation-targeting from around 2011-2012 as long as growth momentum of the island's $23 billion economy allows, Governor Ajith Nivard Cabraal said.
The central bank currently targets money aggregates and looks at average rates of reserve money, and has raised its key interest rates five times since last July to their highest levels since 2002 in a bid to bring down inflation from 10-year highs.
"If we can bring overall numbers as well as per capita rates up, then we would target inflation from about 2011-12 onwards and aim to achieve about 4 percent or so," Cabraal said in an interview with journal Central Banking.
"I would of course be happy to have inflation at 4 percent over the next few years, but I think it may be necessary for us to live with about 5-6 percent in the interim period," he said. "We should not disturb growth momentum."
Annual inflation as measured on a 12-month moving average hit 17.4 percent in April, up from 16.8 percent in March, as food price rises and costly fuel imports piled pressure on.
The central bank is aiming to contain inflation at 8.5 percent in 2007, as measured by the GDP deflator. Cabraal said the bank has estimated an upper inflation band of 11.5-12 percent by the end of the year, and a lower band of around 8 percent.
Sri Lanka's economy grew 7.4 percent in 2006, the island's highest growth rate since 1978. The central bank forecasts full-year growth in 2007 of 7.5 percent.
However, the Asian Development Bank has warned growth could slow to around 6.0 percent a year over the next two years, citing the impact on tourism of renewed civil war between the state and Liberation Tigers of Tamil Eelam (LTTE) rebels plus the slow pace of structural reform.
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