Dr. Nandalal Weerasinghe, Governor of the Central Bank of Sri Lanka (CBSL), has reaffirmed the bank’s accommodative monetary policy stance, in alignment with current inflationary trends.
Dr. Weerasinghe projected that inflation will remain well below the 5% target until the first quarter of 2025, before stabilizing around the target level later in the year.
Despite technically falling below the lower bound of the inflation target of 3%, Dr. Weerasinghe emphasized that this extended period of low inflation is beneficial for an economy recovering from a severe crisis marked by historic inflation levels.
The low inflation environment has provided much-needed stability and comfort to both livelihoods and business activities, facilitating a continued rebound in domestic economic activity.
This favorable environment has eased significant bottlenecks previously faced by various economic sectors, allowing for smoother business operations. Improved fiscal performance through consolidation efforts and the financial turnaround of key state-owned enterprises have enabled the banking sector to reduce its exposure to the government, freeing up resources for lending to the private sector, he said.
Dr. Weerasinghe noted a gradual increase in private sector credit in recent periods, with expectations of a notable expansion in lending to productive sectors, particularly those focused on exports and small and medium enterprises (SMEs), which are crucial to the economy.
He also highlighted the enactment of the Central Bank of Sri Lanka Act in September 2023 as a milestone achievement. This act formally recognizes flexible inflation targeting as the CBSL’s monetary policy framework, complemented by a flexible exchange rate policy, further supporting economic stability and growth.
