A key measure of Sri Lanka’s consumer inflation surged to an annual record 69.8 per cent in September, official data showed on Friday, highlighting the challenge for the central bank as the island reels under its worst financial crisis in seven decades.

The Colombo Consumer Price Index (CCPI), a leading indicator that gauges inflation in Sri Lanka’s biggest city, accelerated past the previous all-time year-on-year high of 64.3 per cent in August.

Policymakers closely track the CCPI for their monetary assessments.

Earlier this month, Sri Lanka’s other main inflation measure, the National Consumer Price Index (NCPI), which captures broader retail price inflation, also touched a record 70.2 per cent in August.

The South Asian island of 22 million people has been grappling with a dramatic surge in inflation for nearly a year as volatile global prices and a sharp depreciation in the value of its currency battered the economy.

Dwindling foreign exchange reserves to fund imports have intensified Sri Lanka’s crisis, causing shortages in essentials in a further blowout in the cost of living.

Food prices continue to bear the brunt of the inflationary impact, climbing to 93.7 per cent, while prices of non-food items rose 50.2 per cent, the statistics office said.

“September inflation is marginally higher than we expected. Clearly tariff increases for water and electricity made in August have partly filtered into this month as well,” said Dimantha Mathew, head of research at First Capital Holdings.

In an effort to tame prices and stabilise markets, the Central Bank of Sri Lanka (CBSL) has raised interest rates by 900 basis points so far this year.

The central bank is expected to stand pat on rates at its Oct. 6 policy review, after holding steady in August, as policymakers are counting on an easing in inflation over coming months amid an economic contraction.

Any easing in consumer prices will be marginal at best, analysts say, forecasting high inflation rates will remain till about the end of the first half of 2023.

Sri Lanka’s economy shrank 8.4 per cent in the quarter through June from a year ago in one of the steepest declines seen in a three-month period, amid fertiliser and fuel shortages.

Analysts expect a further contraction in the September quarter, which would tip the country into a technical recession.

Mathew of First Capital expects inflation to reduce marginally from October, meaning prices will stay relatively high for some time.

Sri Lanka expects the International Monetary Fund board to approve a $2.9 billion loan by year-end, officials from the country’s central bank told investors during a virtual presentation last week, sources participating in the event said.

Sri Lanka is struggling with its worst economic crisis in more than seven decades, which has led to shortages of essentials and the ouster of a president.

The IMF board approval of the loan is expected by mid-December. From now until mid-November, the country aims to get financing assurances from public- and private-sector creditors.

Sri Lanka targets agreements in principle with all its creditors between the last quarter of the year and the second quarter of 2023, the sources participating in the event said.

The country earlier this month reached a staff-level agreement with the IMF for the loan of about $2.9 billion, contingent on it receiving financing assurances from official creditors and negotiations with private creditors. “It’s going be very tough, but so much of it depends on China, basically one creditor, so maybe it can be done,” said a bondholder who requested anonymity.

The virtual presentation to investors on Friday marks the first time the Sri Lankan government has formally engaged with private bondholders after deciding earlier this year that it would restructure $13 billion in international sovereign bonds, held by private creditors such as asset managers BlackRock and Ashmore.

Central Bank Governor Nandalal Weerasinghe and Treasury Secretary Mahinda Siriwardena participated in the virtual presentation, along with representatives of financial and legal advisers Lazard and Clifford Chance.

“This was a fairly typical kind of introductory presentation that we’ve seen a lot of times before,” the bondholder said. “The government lays how bad the situation is basically trying to anchor expectations towards a deep haircut.”

Sri Lanka also needs to renegotiate debt with bilateral creditors such as China, Japan and India. The sources attending the presentation said Sri Lankan government officials said the country is encouraging an ad-hoc bilateral creditor coordination platform to obtain financing assurances from official bilateral creditors.