FINANCIAL CHRONICLE – The Central Bank of Sri Lanka has opened a public consultation to gather opinions on its inflation target and related metrics as it prepares for a review ahead of an upcoming decision in October.
Initially set at 5 percent in October 2020 under the previous administration, this inflation target will expire later this year, marking the end of a three-year period as stipulated by the new Central Bank Act.
Following the economic turmoil of 2022, the Central Bank struggled to maintain its inflation target, failing to keep the rate within the desired range of 3 to 7 percent due to its deflationary measures.
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The bank’s invitation for public feedback comes in response to criticism surrounding the 5 percent target, with some experts arguing that it is excessively high and should be reduced to approximately 2 percent.
Under the new Central Bank Act, the primary mission of the Central Bank of Sri Lanka is to achieve and uphold stability in domestic prices. The bank employs a flexible inflation targeting (FIT) framework to help meet this objective.
This framework is designed to align inflation with the target established in an agreement between the Minister of Finance and the Central Bank, as outlined in the Monetary Policy Framework Agreement (MPFA). Currently, the agreement mandates that the Central Bank maintain a quarterly headline inflation rate, based on the Colombo Consumer Price Index (CCPI), at 5 percent, with an allowable deviation of ±2 percent for measurement and accountability purposes.
The new legislation stipulates that the inflation target and its associated parameters must be reviewed at least once every three years, or more frequently in extraordinary situations.
In a recent statement, the Central Bank noted, “We are conducting a review of the inflation target and related parameters to evaluate their relevance in light of Sri Lanka’s changing economic landscape.”
To facilitate this review, the Central Bank of Sri Lanka is encouraging public participation through a survey. The insights gathered will enhance the review process and ensure the effectiveness of the monetary policy framework in maintaining price stability.
The survey can be accessed via the provided link, and the Central Bank is seeking public feedback by July 15, 2026. (Colombo/June 19/2026)
