UPDATE 1-S.Lanka inflation slows to 28-month low

(Adds details, analyst quotes)

COLOMBO, Jan 30 (Reuters) - Sri Lanka's annual inflation
slowed to a 28-month low of 10.7 percent in January, its
seventh straight month of decline from a record high in June,
the government said on Friday.

Sri Lanka's annual average inflation eased to 21.6 percent
from 22.6 percent in December. Economists polled by Reuters had
expected annual average inflation rate of 21.65 percent.

"This is mainly due to a sharp drop in fuel and commodity
prices. The fall in prices of consumer goods along with a very
effective monetary policy also helped," Danushka Samarasinghe,
head of research at Asia Securities, said.

Inflation fell from 14.4 percent in December and a record
high of 28.2 percent, the Department of Census and Statistics
data showed.

The government on Dec. 30 slashed diesel prices by 12.5
percent after world oil prices fell sharply.

Last week, Central Bank Governor Ajith Nivard Cabraal told
Reuters single-digit inflation would be a reality much sooner
than his original estimate of mid-2009.

Sri Lanka's monetary programme for this year is based on
economic growth of 5.0-6.0 percent and annual inflation of
around 9 percent, the central bank has said.

The central bank, which targets reserve money to keep
inflation down, has said that strategy is working, and that
falling inflation will also help reduce interest rates.

A Reuters inflation survey <LK/INFL1> had expected the data
to show consumer price inflation of 11.5 percent while annual
average inflation was seen at 22.65 percent. [nCOL425450].

(Reporting by Shihar Aneez; Editing by Bryson Hull and
Kazunori Takada)