ECONOMYNEXT – Sri Lanka’s monetary policy is balanced but there was space to cut rates if there was an external shock, Central Bank Governor Nandalal Weerasinghe said referring to a possible impact from Trump tariffs.
Sri Lanka had a policy rate of 7.75 percent which indicated a real interest rate of 2.75 percent considering the 5 percent inflation target.
The central bank is expecting inflation to reach a 5 percent target next year, and growth was above the 3 percent projected by the International Monetary Fund and close to 5 percent, which indicated a ‘right balance’ in monetary policy, he said.
“But what’s good about it is that if there’s going to be any impact out of this external event, we have a space in the monetary policy for us to support the local economy,” Governor Weerasinghe told a forum in Singapore organized by the Colombo Stock Exchange and Securities and Exchange Commission.
“But without needing that support, pushing it through can create bubbles or burst cycles.”
“That’s why I think we have good space for us to use going forward, depending on the outcome. Right now, we don’t see a risk at this point.
“We saw a risk in April when this was announced. That’s why we were using very carefully the space we were having.”
Concerns have been raised, however, about the last rate cut; that it will push private credit too fast and the imports from investment credit (general imports) will reduce the ability to collect foreign reserves to repay debt.
However, the central bank is confident of reaching the year-end IMF target of about 7 billion US dollars, he said.
Since Sri Lanka has reduced the proposed Trump tariffs to 20 percent from the original 44 percent, the island’s competitive position was not damaged, he said. (Colombo/Aug12/2025)
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