UPDATE 1-S.Lanka's inflation to remain 16-20 pct until June

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By Shihar Aneez

COLOMBO, Feb 1 (Reuters) - Sri Lanka's annual inflation will remain at around 16-20 percent in the first half of 2008, the central bank said on Friday, due to the removal of a fuel subsidy and high global commodity prices.

Inflation measured on a 12-month moving average was 16.4 percent in January on a new index, up from 15.8 percent in December, while consumer prices rose 20.8 percent from 18.8 percent during the same period.

Sri Lanka is still affected by the ending of fuel subsidies in mid-2007 and increases in prices of imported food products.

"This one time increase will be gradually dissipated over the next few months," the central bank said in a statement.

"Until it is fully dissipated, inflation is likely to remain around 16 to 20 per cent during the first half of 2008."

The bank said it is adopting a tight monetary policy with a tight reserve money programme to contain inflation arising from the demand pressure. It expects to curb inflation if global commodity prices don't increase.

"Inflation is expected to moderate on a gradual path -- to 10-11 percent by end-2008 and 9-10 per cent by end-2009. Any unforeseen significant price changes in the international market would, however, result in a deviation from this expected path."