Sri Lanka's inflation to remain below target until March 2025, central bank says

SRI Lanka’s inflation is likely to remain well below target until March next year, a monetary policy report released by the central bank said on Thursday (Aug 15), underscoring the island nation’s fragile economic rebound from a crippling financial crisis.

The island nation’s economy is seeing glimmers of recovery, helped by a US$2.9 billion International Monetary Fund programme, after it went into freefall in 2022 due to a severe foreign exchange shortage.

Sri Lanka’s inflation is projected to remain about 2 percentage points below the Central Bank of Sri Lanka’s target of 5 per cent for the next seven months due to lower power, fuel and food prices, the report said.

“Headline inflation is anticipated to record a temporary uptick towards the second half of 2025, mainly due to the unfavourable statistical base effect, and to gradually stabilise around the targeted level of 5 per cent (year-on-year) over the medium term,” the report added.

Inflation rose to 2.4 per cent in July from 1.7 per cent the previous month, but analysts expect it to hover around the 3 per cent-4 per cent mark for the rest of 2024.

Sri Lanka’s economy is expected to grow 3 per cent in 2024 after contracting 2.3 per cent last year.

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Taking advantage of lower inflation, the central bank has cut rates by 75 basis points this year in an easing cycle that has seen rates drop by 7.25 percentage points since June 2023, partially reversing 10.50 percentage points of increases since April 2022 when the financial crisis was at its height. REUTERS