Sri Lanka’s central bank will submit a report to Parliament via the Finance Minister on inflation dropping below the lower threshold of its 5% inflation target, cabinet spokesman Nalinda Jayatissa announced.
The central bank had earlier convinced then-President Ranil Wickremesinghe, elected by Parliament during an inflation crisis triggered by rate cuts, to adopt a 5% inflation target with a margin of ±2%. This followed the economic instability caused by multiple currency crises after the country’s civil war. Unlike nations with stable monetary policies achieving 2% or less inflation rates, Sri Lanka has endured four currency crises while targeting 5% inflation, ultimately leading to a default.
According to an agreement with political leaders, the central bank can generate inflation of up to 7%. However, since late 2022, the bank has implemented largely deflationary policies, appreciating the currency, halting inflation, and accumulating monetary reserves.
Inflation for the second and third quarters was 1.4% and 0.8%, respectively. Under Section 25(5) of the Central Bank Law, a report must be submitted to Parliament when inflation deviates from the target range, Minister Jayatissa explained.
The central bank’s exceptional monetary and exchange rate policies have even resulted in a 12-month deflation, marking a rare occurrence in Sri Lanka’s financial history.
