Inflation spirals: How are Sri Lanka, Turkey and Argentina dealing with it?

The US Federal Reserve last week announced the most aggressive interest rate hike in 30 years to battle the highest inflation in many decades. The US Fed is one of the 45 central banks across the globe that have lifted interest rates in 2022 so far. The aim is to pump out the excess money out of the economy to cool down rising prices. Here are three countries with exceptionally high inflation rates and how their central banks are dealing with it.

Sri Lanka

The Sri Lankan economy has been struggling with fiscal and current account deficits, which pushed its external debt to a massive $51 billion. On the other hand, the country’s currency, the Sri Lankan rupee, lost its value by over 40 per cent in March 2022. According to the Department of Census and Statistics, consumer prices in the capital Colombo are up by 39.1% from a year ago. Food inflation surged 57.4 per cent, while prices of non-food items jumped 30.6 per cent, the data showed.

In April 2022, the Central Bank of Sri Lanka announced an unusual interest rate hike of 700 basis points or seven percentage points, taking the Lending Facility Rate to 14.5 per cent, while the Deposit Facility Rate rose to 13.5 per cent. The monetary policy board cited the build-up of aggregate demand, domestic supply disruptions, exchange rate depreciation, and elevated commodities prices as main concerns amid growing inflationary pressures.

However, the board decided to keep the borrowing costs unchanged in its next review meeting held in May. P. Nandalal Weerasinghe, Governor of the Central Bank of Sri Lanka, said the central bank aimed to bring down the inflation in the range of 4-6 per cent. The governor said keeping interest rates unchanged incentivised the manufacturers to produce more goods.


Argentina’s annual inflation rate reached 61 per cent in the last month. Consumer prices grew 5.1 per cent in just one month. It is a new 30-year high as concerns build up over the repayment of local debt.

The Central Bank of Argentina responded to rising pressure by hiking the benchmark Leliq rate by 300 basis points to 52 per cent, the sharpest rise since 2019. The bank said this was because of the rising perception of financial risk, soaring global prices, and the need to spur saving in the local peso currency.

The inflation rates in the South American country have remained above 25 per cent for the last five years. Argentina’s monetary authority has kept the Leliq rate – the 7-day liquidity bills rate higher than most countries. According to Trading Economics, Argentina’s interest rate is the third highest in the world. As per its pledge in a deal with the IMF, Argentina has achieved positive real interest rates above the annual inflation rate in the country.


Turkey reported an inflation rate of 73.5 per cent in May 2022 – the highest in 23 years, as food prices almost doubled in the same month. It was 10-times the inflation rate in India in May. Turkey’s central bank decided to keep the interest rate constant at 14 per cent in April. Despite high inflation, the central bank cut the interest rates by five percentage points between September 2021 and January 2022.

The country has recorded a high growth rate for many years. The Turkish government has been stressing a new economic model that would boost exports by keeping its currency Lira, at low levels.

Last year’s series of rate cuts resulted in a currency crisis and rising consumer prices. The Lira has lost 11 per cent of its value since the last monetary policy meeting. The currency has declined around 19% this year, further fuelling inflation due to rising import costs.

The inflation headache in India

Inflation may not be as big a headache in India as in Sri Lanka, Argentina, or Turkey, but it is a headache, nonetheless.

Retail inflation eased to 7.04 per cent in May, from 7.79 per cent in the previous month. It is still more than a percentage higher than the RBI’s upper tolerance level of 6 per cent.

The monetary authority had kept the repo rate at a historically low level of 4 per cent for more than two years. It has been raised by 90 basis points or 0.9 per cent in the last two months.

India’s finance ministry has warned about the rising twin deficit in the economy in its latest monthly economic review. The ministry said the increase in the fiscal deficit may cause the current account deficit to widen, compounding the effects of costlier imports and weakening the value of the rupee.

In April 2022, the Reserve Bank of India (RBI) bought $11.965 billion and sold $10 billion in the spot market to support the sharply depreciating rupee. The RBI became a net purchaser of the US currency as it bought $1.965 billion more than it sold in April. The central bank is trying to keep inflation under control without hampering the growth rate.

Some critics have called for quicker actions to control the price pressures. However, the RBI governor Shaktikanta Das has recently said the central bank was not behind the curve, and it was “a conscious call to tolerate inflation for a little more time and wait until the end of March.”

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