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UPDATE 1-Sri Lanka consumer prices hit record low

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COLOMBO, May 29 (Reuters) - Sri Lanka’s annual inflation grew at its slowest rate ever in June, rising only 0.9 percent year-on-year and slowing from 3.3 percent in May, the government said on Tuesday.

In June last year, Sri Lanka’s annual inflation, or consumer price index, hit a record high of 28.2 percent because of record oil prices.

Both figures are based on a new index with a base year of 2002, on which the previous record low was of 2.9 percent was marked in April.

Annual average inflation in the 12 months through June eased to 12.5 percent from 14.7 in May, the eighth straight fall and lowest level since April 2007.

A Reuters inflation survey <LK/INFL1> had expected the data to show consumer price inflation of 2.90 percent while annual average inflation was seen at 13.40 percent. [ID:nCOL512355].

“This is near the bottom,” Channa Amaratunga, director at CT Capital told Reuters. “This is due to a drastic slowdown in the rate of price increase compared to last year’s June. But whether we can maintain low inflation in future is a concern.”

Increasing aggregate demand and private sector credit growth, gradually rising oil prices, and a short supply of agricultural produce could put upward pressure on consumer prices, Amaratunga said.

The central bank on Friday said it would ease monetary policy to boost credit growth if banks do not bring down market lending rates in line with drastically lower treasury bill rates. [ID:nCOL478122]

The central bank on April 5 said growth could hit an eight-year low of 2.5 percent due to the global financial crisis and lag effects from its earlier tight monetary policy.

However, the central bank has said growth could still reach around 5 percent this year, due to expected boosts to the $40 billion economy after the end of a 25-year war on May 18.

The central bank, which targets reserve money to keep inflation down, has said that strategy worked. But it cooled 2008 growth to a four-year low of 6 percent from 6.8 percent in 2007. (Editing by Bryson Hull/Victoria Main)