Central Bank of Sri Lanka to Strengthen Monetary Policy for Exchange Rates

In 2025, the Central Bank of Sri Lanka will enhace its monetary policy forecasting, work on improving its reserve buffers in line with the IMF program, and implement a benchmark spot exchange rate. According to Governor P. Nandalal Weerasinghe of the Central Bank of Sri Lanka (CBSL).

Sri Lanka aims to strengthen its improvement this year following a 5 percent real GDP growth in 2024, the highest in seven years, as noted by its central bank chief. This growth is seen as a way to accelerate the rebound from the country’s most severe financial crisis in decades.

In 2022, Sri Lanka's economy collapsed due to a severe foreign exchange crisis. However, following the establishment of a $2.9 billion International Monetary Fund (IMF) program in March 2023 and the completion of a $25 billion debt restructuring in December, the economy has experienced a recovery that exceeded expectations.

"Achieving a transformative acceleration in growth trajectory is essential to catch up and enhance the growth potential. This would also help enhance the debt-carrying capacity of the country," Weerasinghe said

Weerasinghe added that Sri Lanka's central bank, taking advantage of lower inflation, which fell to -1.7% in December, established a new single policy rate of 8%, thereby easing monetary settings below those previously used and paving the way for increased private sector credit growth. It is anticipated that inflation will move into positive territory by mid-2025, at which point CBSL will aim to sustain a 5 percent inflation rate.

The Governor added that Sri Lanka will proceed with the recapitalisation of banks, the consolidation of large finance companies, and a review of the 2 per cent Statutory Reserve Ratio (SRR) to enhance financial system stability.