Sri Lanka to maintain inflation rate of around 5% in future
October 5, 2023 02:56 pm
The Central Bank of Sri Lanka (CBSL) and the government has decided to maintain the inflation rate of around 5% in the future, in accordance with the new CBSL Act, Governor Dr. Nandalal Weerasinghe said today.
He mentioned this while addressing a special press briefing on the first monetary policy review by the Monetary Policy Board today (Oct. 05).
“Under the new Central Bank Act, we have a commitment now agreed with the government to maintain inflation at 5% over a medium to long-term period,” he said.
He pointed out that the current inflation rate of 1.3% is below the range that they are expecting to maintain in the medium to long-term. “This we all understand, the reasons are mainly 12 months ago we had almost 70% inflation and came down sharply in the disinflation process that continued for the last several months.”
The CBSL governor said that in their view the end of the disinflation process has almost neared and that now inflation has stabilized coming to a lowest point of 1.3% in the last month.
“What we can expect under normal circumstances is that this trend, obviously we can expect that trend to turnaround and settle over a period of time around our target range between 4-6%, around 5% medium.”
Earlier today, the CBSL published its latest monetary policy review, which revealed the bank’s decision to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 basis points (bps) to 10.00% and 11.00%, respectively.
The decision to slash the SDFR and the SLFR was reached following a careful analysis of the current and expected developments, including low inflation and benign inflation expectations in the domestic economy, with the aim of stabilizing inflation at the envisaged 5% level in the medium term, thereby enabling the economy to reach its potential growth.
Meanwhile, the level of gross official reserves of the country has been estimated at around USD 3.5 billion as of the end of September 2023.
However, this includes the swap facility from the People’s Bank of China to the tune of USD 1.4 billion, which is subject to conditionalities on usability.
In its latest monetary policy review, the CBSL said that during the eight months ending in August 2023, Sri Lanka’s trade deficit decreased notably, with a significant decrease in merchandise imports due to lower demand and import restrictions, and a relatively low decline in merchandise exports.
