When inflation is high, it can make it more expensive for businesses to operate and for consumers to buy goods and services. This can lead to slower economic growth.
The easing of inflation in Sri Lanka is likely due to a number of factors, including the country’s recent bailout from the International Monetary Fund (IMF).
The IMF bailout has helped to stabilize the Sri Lankan economy and has made it easier for the government to import essential goods and services. This has helped to reduce the pressure on prices.
In addition, the Sri Lankan central bank has been cutting interest rates recently. This has made it cheaper for businesses to borrow money and invest, which can also help to boost economic growth.
However, it is important to note that the easing of inflation is not a guarantee of a full economic recovery in Sri Lanka.
The country is still facing a number of challenges, including a high debt burden and a weak currency. It will take time for the Sri Lankan economy to fully recover.
The easing of inflation is likely to lead to the central bank continuing to ease interest rates.
This is because the central bank’s goal is to keep inflation within a target range. If inflation continues to ease, the central bank may cut interest rates by another 200 basis points in the second half of 2023.
Lower interest rates can help to boost economic growth by making it cheaper for businesses to borrow money and invest. However, lower interest rates can also lead to higher inflation.
Therefore, the central bank will need to carefully monitor inflation and adjust interest rates accordingly.Overall, the easing of inflation is a positive sign for the Sri Lankan economy. However, it is important to note that the country is still facing a number of challenges. The full economic recovery will take time.