Sri Lanka's key inflation rate rose in June to 1.7% year-on-year from 0.9% in May, the statistics department said on Friday, though analysts said this was well within expectations.

The Colombo Consumer Price Index, a leading indicator for broader national prices, tracks inflation in Colombo, Sri Lanka's biggest city.

Food prices rose 1.4% in June after remaining static in May, the Department of Census and Statistics said.

Prices for non-food items rose 1.8% in June after 1.3% in May, with prices remaining subdued due to a 22% reduction in power tariffs for households implemented in March and a stronger rupee.

"Even going forward for the next three months or so, you might see a marginal increase, but it will be under 5%, which is the central bank's target," said Raynal Wickremeratne, co-head of research at Softlogic Stockbrokers.

Sri Lanka racked up record inflation that peaked at 70% in September 2022 after its economy was pummelled by the worst financial crisis in decades, triggered by a plunge in dollar exchange reserves that forced it to default on its foreign debt for the first time.

The South Asian island nation signed deals with China and other creditor nations to restructure about

$10 billion

in bilateral debt on Wednesday in a move that will help it stabilise its economy and reach 3% growth, as projected by the central bank, after contractions of 7.3% in 2022 and 2.3% in 2023.

Sri Lanka's central bank held interest rates steady last month to ensure inflation pressures remain in check as authorities look to foster economic stability and lift growth. (Reporting by Uditha Jayasinghe; editing by Jason Neely and Kevin Liffey)