Sri Lanka's spike in inflation is expected to be short-lived and will return to the targeted 5% in the medium term, a monetary policy report released by the central bank said on Thursday as the island nation's economy stabilises from a crippling financial crisis.

Sri Lanka's economy is seeing glimmers of recovery, helped by a $2.9 billion International Monetary Fund (IMF) program, after it went into freefall in 2022 due to a severe foreign exchange shortage.

At the start of 2024, Sri Lanka raised its value added tax (VAT) to 18% from 15% to meet revenue targets under the IMF programme sparking a renewed rise in its key inflation rate, which rose to 6.4% at the end of last month from 4% in December.

(Reporting by Uditha Jayasinghe; Editing by Ros Russell )