Sri Lanka’s inflation target set at 5% for the next three years

The Central Bank of Sri Lanka (CBSL) will aim to maintain the quarterly headline inflation rate at 5% over the next three years under a newly signed Monetary Policy Framework Agreement (MPFA).

The agreement was signed on October 1 by President Anura Kumara Dissanayake, in his capacity as Minister of Finance, Planning and Economic Development, and CBSL Governor Dr. P. Nandalal Weerasinghe, pursuant to Section 26 of the Central Bank of Sri Lanka Act, No. 16 of 2023. The MPFA was published in Government Gazette Extraordinary No. 2508/28 on the same date.

Under the terms of the agreement, the 5% inflation target includes an accountability margin of ±2 percentage points. Quarterly headline inflation is defined as the simple average of the year-on-year percentage changes in the monthly Colombo Consumer Price Index (CCPI), published by the Department of Census and Statistics, across the three months of the corresponding calendar quarter.

In accordance with Section 26(4) of the Act, inflation target parameters undergo a review every three years or earlier under exceptional circumstances. The 2026 review represents the first scheduled assessment following the initial MPFA signed in October 2023.

The target was maintained after the CBSL conducted a comprehensive technical assessment evaluating Sri Lanka’s economic structure, empirical evidence, monetary policy considerations, framework credibility, stakeholder feedback, and international best practices. Following this assessment, the CBSL submitted its recommendation to the Ministry of Finance, which accepted the proposal.

The CBSL stated it remains committed to achieving the 5% target through forward looking, data-driven decisions to maintain domestic price stability. (Newswire)

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