ECONOMYNEXT – Sri Lanka’s recent deflation is not a concern as the economy is growing at a ‘healthy’ rate, Central Bank Governor Nandalal Weerasinghe said.
“We are gradually coming back to our target for from the deflation,” Governor Weerasinghe said.
“It is not a concern because as long as the economy is growing at a healthy rate, deflation is not a concern.
“Temporary period of deflation is good, especially after the spike in inflation and very high price levels experienced in the country in 2022.”
What has been described as deflation in Sri Lanka is a 12-month statistical fall in inflation, mostly due to what is called a ‘base effect’ amid a very gentle rise in prices the last quarter of 2022, when the central bank’s deflationary policy started showing up in the balance of payments.
The central bank in 2023 also allowed the currency to appreciate to around 300 to the US dollar, amid deflationary monetary policy which has allowed it to collect reserves.
Sri Lanka consumer prices have risen around 3.6 percent since September 2022 when its deflationary policy began to generate balance of payments surpluses.
From around 1952 Sri Lanka’s central bank (in 1951 the then Central Bank of Ceylon ran deflationary policy to ward off inflation from the Fed) has generally denied monetary stability to the country by cutting rates with open market operations which creates forex shortages.
As a result the country has exchange controls, which intensify and expand into trade controls when rates are severely suppressed with liquidity injections for various reasons, including to target 5 percent inflation, analysts have said. (Colombo/Aug13/2025)
