Sri Lanka central bank inflation report is set to be presented to Parliament after the monetary authority recorded inflation outcomes rarely seen in the country’s modern economic history. The findings reflect prolonged price stability that has sparked renewed debate over inflation targeting and accountability.
Sri Lanka central bank inflation report to outline sub-2% trend
Sri Lanka’s central bank is preparing to submit a detailed report to Parliament explaining how inflation fell below two percent during the first half of 2025, undershooting its controversial five percent inflation floor. The report, approved by the Cabinet and scheduled to be tabled through the Finance Minister, comes amid growing scrutiny of the country’s monetary framework and the long-term implications of sustained deflation.
According to official statements, the central bank recorded average inflation of minus 1.1 percent in the second quarter of 2025, followed by 0.8 percent in the third quarter. These outcomes fell below the lower bound of the central bank’s stated target range, challenging the rationale behind maintaining a fixed inflation floor rather than a ceiling. Observers note that such levels of price stability have been rare in Sri Lanka for decades.
The Sri Lanka central bank inflation report has already drawn praise from members of Parliament, including economist and Committee on Public Finance member Kabir Hashim. Speaking during committee deliberations, Hashim described the central bank’s recent performance as exceptional, arguing that inflation is fundamentally harmful to household welfare and long-term economic stability. He questioned why policymakers would seek to raise inflation deliberately when lower inflation improves real incomes and reduces hardship.
Hashim’s remarks carry added weight given his experience as a cabinet minister during the 2015 administration, a period marked by aggressive liquidity injections and inflationary open market operations. Those policies, which included abandoning a bills-only approach and engaging in extensive bond purchases, coincided with vehicle import restrictions, declining government revenues, and mounting losses at the Ceylon Petroleum Corporation despite market-based fuel pricing. Analysts have since described that period as a cascading policy failure that weakened the currency and amplified macroeconomic imbalances.
Historically, Sri Lanka maintained inflation broadly in line with advanced economies until the late 1970s. Following changes to the global monetary system under the International Monetary Fund’s Second Amendment, domestic inflation began to diverge, accompanied by rising social unrest. Critics argue that this historical context underscores the importance of firm monetary discipline and legislative oversight in preventing inflationary excesses.
The current debate has also revived criticism of the central bank’s five percent inflation target, which was set as a floor rather than a ceiling. Detractors claim this structure reduces accountability by allowing expansionary policies even when price stability has already been achieved. Economic commentators warn that reliance on statistical models and backward-looking data, without firm theoretical grounding, risks repeating past policy mistakes with severe social consequences.
Harsha de Silva, a former deputy minister who previously advocated tighter monetary conditions to protect household finances, has also cautioned against output-based targeting frameworks. He has argued that attempts to stimulate growth through accommodative monetary policy often undermine currency stability, especially in economies with fragile external balances.
Analysts note that Parliament has historically been the only institution capable of restraining inflationary central banking through legislation and oversight. Calls have intensified for reforms that would replace the existing inflation floor with a strict low ceiling, potentially around two percent, to prevent excessive rate cuts that could fuel another balance-of-payments crisis.
While monetary policy in 2025 has been broadly deflationary, aided by interest payments on central bank-held restructured government bonds, concerns remain over recent exchange rate management. The central bank has been accused of selectively limiting convertibility, contributing to currency depreciation despite the generation of current account surpluses.
Supporters argue that missing the inflation target has allowed Sri Lanka to rebuild external buffers and resume debt repayments, outcomes that would have been impossible under inflationary conditions. Classical economists, however, warn that using inflation as a tool to stimulate growth produces temporary illusions of prosperity followed by deeper economic pain, often triggering social unrest when expectations collapse.
As Parliament prepares to review the Sri Lanka central bank inflation report, the findings are expected to influence future amendments to the central bank law and shape the country’s monetary policy framework. The outcome may determine whether Sri Lanka institutionalizes its recent price stability or risks repeating cycles of inflation and crisis.