(Bloomberg) -- Sri Lanka’s inflation accelerated for the first time in three months in April largely due to base effect and a likely pick up in demand.

The consumer price index in Colombo rose 1.5% from a year ago, the Statistics Department said on Tuesday. That compares with a 2.5% increase seen in a Bloomberg survey, and a 0.9% reading in March. 

The Central Bank of Sri Lanka, which unexpectedly lowered the benchmark lending rate by 50 basis points in March, has said it doesn’t expect a threat to its 5% inflation target despite an uptick in prices. The monetary authority will hold its next policy review on May 28. 

“Inflation adjustment has happened broadly because of base effect,” said Sanjeewa Fernando, senior vice president of research at Asia Securities Pvt Ltd in Colombo. “Activity is also said to be broadly picking up, with demand likely slightly higher in April amid local festivals.”

Sri Lanka’s annual growth is expected to turn positive this year and Central Bank Governor Nandalal Weerasinghe has said the monetary policy stance will remain accommodative for the economy to reach its full potential. The South Asian island’s economy expanded for a second straight quarter in the three months to December, as industrial activity picked up pace, buoyed by an International Monetary Fund bailout and lower interest rates. 

Sri Lanka is trying to reach an agreement with investors to restructure its defaulted global bonds to ensure financing from the nation’s $3 billion IMF loan program keeps flowing. The government has already struck deals with official creditors, including China, India and the Paris Club as well as with holders of its local debt.

--With assistance from Tomoko Sato.

(Updates with analyst comment in fourth paragraph)

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