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PREVIEW-Sri Lanka's inflation seen at 23 pct in September

 * What: August consumer price index
 * When: Tuesday, Sept. 30, about 3:00 pm (0930 GMT)
 * 12-mth annual average seen at 23.0 pct vs August's 22.6
pct     By Shihar Aneez
 COLOMBO, Sept 29 (Reuters) - Sri Lanka's inflation
<LK/INFL1>, as measured on a 12-month moving average, is
expected to have risen in September to its highest level in six
years due to high oil and food prices in the first half of
2008.
 The median forecast of nine analysts predicted the 12-month
moving average had risen to 23.0 percent in September, the
highest-ever  reading for the index and above August's 6-year
high of 22.6 percent.
 However, consumer prices for this month are forecast to
have risen 23.0 percent from last year, easing from a 24.9
percent rise in August.
 "Consumer prices are easing due to fall in commodity prices
and tightening of monetary policy by the central bank," Vajira
Premawardhena, head of research at Lanka Orix Securities, said.
 "So the consumer prices would fall continuously and annual
average inflation will take another two months to drop as it
still has the impact of past price increases."
 Central Bank Governor Ajith Nivard Cabraal last month told
Reuters that annual inflation is slowing down owing to the
bank's switch to reserve money targeting from policy rate
changes as its main inflation fighting tool.
 However, Cabraal said the bank would not reach its year-end
target of 10-11 percent because of the effect of dual food and
fuel price shocks on the nation's $27 billion economy. It would
not be over 20 percent, he said.
 The monetary policy would also cut down GDP growth in the
short term, to below the 7 percent forecast for this year,
Cabraal said.
 In July, the central bank reduced its annual average
reserve money target to 11.75 percent after cutting it to 12.5
percent in April to curb money supply. Originally, the bank
targeted 14.7 percent.
 The overnight repurchase rate stands at 10.5 percent and
the reverse repurchase rate at 12 percent.
 Both rates are at their highest levels since 2002, but well
below T-bill rates, which commercial banks use as a reference
for their own lending rates instead of the official rates.
 Economists say the bank's reserve money targeting still has
not brought down core inflation.
 "The monetary policy has not been effective enough to
curtail the increasing expenditure and the consequent rise in
aggregate demand, caused by huge, unsustainable budget
deficits," Prof. A.D.V. de S Indraratna, president of the Sri
Lanka Economist Association said at a conference earlier this
month.
 Annual core inflation, which excludes oil and food in its
calculations, has surged to 17.4 percent from 6.7 percent in
November 2007.
 The Census and Statistics Department introduced a new
inflation index formally from December, with 2002 as the base
year, saying the old measure did not reflect the consumption
pattern of households.
 CCPI (N) (New Index, pct)  12-Mo Average    vs year ago   
-----------------------------------------------------------   
  Median                           23.00            23.00     
  Average                          23.06            23.03     
  Low                              21.80            22.95     
  High                             24.00            23.20     
  Number of banks                      9                9     
  Note: The following banks participated in the poll:
Commercial Bank of Ceylon, HSBC, Standard Chartered Bank,
Citibank, National Development Bank (NDB) Nations Trust Bank
(NTB), Hatton National Bank (HNB), Bank of Ceylon, and People's
Bank.
 (Editing by Bryson Hull)

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