Sri Lanka’s monetary policy remains steady as economy shows signs of recovery
March 27, Colombo (LNW): Sri Lanka’s central bank has reaffirmed its current monetary stance, asserting that existing policies are well-aligned with the country’s economic trajectory and inflation targets.
Central Bank Governor P. Nandalal Weerasinghe stated that the monetary policy is effectively filtering through the economy and is poised to support inflation returning to positive territory in the latter half of the year.
The Central Bank of Sri Lanka maintained its overnight policy rate at 8% for the second consecutive meeting, a move that aligned with the expectations of most economists. Weerasinghe, speaking to Bloomberg TV, described this as the most appropriate course of action at present, given the country’s economic indicators.
Following a challenging period of contraction, Sri Lanka’s economy rebounded with a 5% expansion in 2024, reversing the 2.3% decline experienced the previous year. Authorities anticipate this momentum to continue, though global uncertainties—such as fluctuations in commodity prices and potential economic shifts stemming from US trade policies—will be monitored closely.
The $3 billion International Monetary Fund (IMF) bailout package has played a pivotal role in stabilising the nation’s financial situation. Since its historic default in 2022, Sri Lanka has implemented stringent tax hikes and policy measures to meet the IMF’s loan conditions.
However, further economic reforms, including adjustments to energy pricing and adherence to fiscal targets, remain necessary to secure additional financial support from the global lender.
Weerasinghe emphasised the need for Sri Lanka to remain committed to fiscal discipline and governance reforms, stating that there is strong confidence within the administration to continue on the same path. Maintaining this approach is crucial for sustaining financial stability and fostering investor trust.
Meanwhile, economic analysts caution that excessive monetary easing could lead to overheating, triggering a surge in imports, placing strain on foreign reserves, and weakening the national currency. The central bank, therefore, appears unlikely to risk such outcomes by altering its policy stance prematurely.
In addition to IMF assistance, Sri Lanka recently secured approximately $334 million in fresh loans and is engaged in negotiations to finalise debt restructuring agreements with key bilateral creditors, including India and members of the Paris Club.
