Sri Lanka’s central bank to focus on stronger crisis recovery in 2025

Sri Lanka will focus on stronger recovery this year after the island nation posted real GDP growth of 5% in 2024, the highest in seven years, its central bank chief said on Wednesday, hoping to accelerate a rebound from its worst financial crisis in decades.

Sri Lanka’s economy crumpled under a severe foreign exchange crisis in 2022, but has posted a faster than expected rally after it secured a $2.9 billion International Monetary Fund (IMF) program in March 2023 and completed a $25 billion debt restructuring in December.

The economy grew 5.2% in the first nine months of 2024, outstripping the 3% estimate by the Central Bank of Sri Lanka (CBSL), Governor P. Nandalal Weerasinghe said.

“Achieving a transformative acceleration in growth trajectory is essential to catch up and enhance the growth potential. This would also help enhance the debt-carrying capacity of the country,” he said at an annual policy agenda launch.

Taking advantage of lower inflation, which reached minus 1.7% in December, Sri Lanka’s central bank set a new single policy rate of 8%, easing monetary settings below previously used benchmarks and setting the stage for stronger private sector credit growth, Weerasinghe added.

Inflation is expected to reach positive territory in mid-2025, after which CBSL will focus on maintaining a 5% inflation rate.

CBSL will also strengthen monetary policy forecasting, continue to improve its reserve buffers under the IMF program, and introduce a benchmark spot exchange rate in 2025. Weerasinghe said.

Sri Lanka will continue recapitalisation of banks, consolidate large finance companies, and review the Statutory Reserve Ratio (SRR) of 2% to increase financial system stability, the Governor added.

Source: Reuters

--Agencies