As inflation spikes throughout the Sri-Lankan economy, the central bank has responded by increasing the interest rate from 5.5% to 6.5%.
This tightening of monetary policy follows three consecutive months of double-digit inflation, with the official rate measured at 15.1% in February. Sri-Lankan consumers are particularly feeling the pinch at the grocery store with food inflation reaching 25.7% in the last month.
This recent hike in inflation has been attributed to adverse global economic conditions, with surging energy and commodity prices identified as the mail culprit.
Q1. What is meant by the expression ‘tightening of monetary policy’?
Q2. Explain why increasing the interest rate is used as a measure to decrease inflation.
Q3. Analyse the impact of surging inflation on Sri-Lankan consumers.
Q4. Explain one other method the government could use to try and dampen the inflationary pressure in Sri-Lanka.
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