Central Bank of Sri Lanka explains impact of deflation

The Assistant Governor of the Central Bank of Sri Lanka (CBSL), Dr. Chandranath Amarasekara says that they do not expect the deflation to continue for a long time to have an impact on country’s production.

He made these remarks during the recent monetary policy review briefing of 2024.

Commenting further, Dr. Amarasekara expressed: “We do not expect deflation to continue for such a long time to have an impact on production. So, I think by the second quarter of the next year, we will see the end of deflation.”

Meanwhile, in response to a question raised by a journalist whether the corporate profitability be impacted if the deflation drags for another year, the Governor of the Central Bank of Sri Lanka Dr. Nandalal Weerasinghe said “the cost of production comes down means the profitability can increase.”

Moreover, the CBSL Chief also expressed that Sri Lanka does not need to rely on foreign exchange swaps at the moment, as the country’s official foreign reserves have grown, ensuring sufficient reserve liquidity.
  
Meanwhile, the Director of the Payments and Settlements Department, K.V.K. Alwis, mentioned that Sri Lanka is currently in discussions with Indian authorities to implement a system allowing Sri Lankans to pay in Sri Lankan rupees when visiting India.
 
This initiative would mirror the UPI system available in Sri Lanka for Indian travelers, he added.

Sri Lanka’s consumer prices fell by 2.1% in November, the highest deflation rate recorded by the island nation since 1961, official data showed Saturday (Nov. 30).

“Headline inflation will remain negative in the next few months, deeper than previously projected, mainly due to larger downward adjustments in energy prices and reduction in volatile food prices,” the CBSL said earlier in a statement. 

However, the country’s financial regulatory authority said the inflation was likely to return to its target level of five percent in the coming months.