Central Bank of Sri Lanka keeps policy interest rates unchanged

The board arrived at this decision with its aim of ensuring inflation aligns with the target of 5 per cent over the medium term, while enabling the economy to reach its maximum potential.

Inflation is projected to remain well below the 5-per cent target over the next few quarters, potentially recording deflation in the immediate future driven by changes to administratively determined prices and easing of supply conditions, the board observed, the central bank said in a release.

Headline inflation softened significantly and is likely to be below the target by a notable margin in the forthcoming months, while core inflation, which reflects underlying demand conditions in the economy, also moderated, albeit at a slower pace, and is projected to remain around the current levels on an average.

Supported by appropriate policy measures, inflation is expected to gradually align with the targeted level of 5 per cent over the medium term after a likely overshooting in the second half of 2025, the bank said.

The economy is estimated to have grown by 4.7 per cent year on year (YoY) in the second quarter this year, following a YoY expansion of 5.3 per cent recorded in Q1.

The latest economic indicators suggest that the robust growth outcome recorded in the first half of 2024 is likely to continue through the remainder of the year resulting in a higher growth for 2024 than initially projected.

Looking ahead, the expansion of credit to the private sector is expected to continue supported by lower market lending interest rates and the anticipated recovery in domestic economic activity.

Meanwhile, yields on government securities, which came under pressure owing to perceived uncertainties amidst the presidential election, showed preliminary signs of easing at the treasury bill auction following the election.

The merchandise trade deficit widened during the eight months ending August 2024 (provisional) compared to the same period in 2023, driven by a larger expansion in import expenditure relative to export earnings.

Fibre2Fashion News Desk (DS)