The Central Bank of Sri Lanka (CBSL) does not anticipate prolonged deflation affecting the country’s production, according to Assistant Governor Dr. Chandranath Amarasekara. Speaking at the 2024 monetary policy review briefing, he stated that deflation is expected to end by the second quarter of next year.
In response to concerns about corporate profitability in the event of extended deflation, CBSL Governor Dr. Nandalal Weerasinghe clarified that lower production costs during deflation could lead to increased profitability.
Dr. Weerasinghe also noted that Sri Lanka currently has no need for foreign exchange swaps, citing improved official reserves and sufficient liquidity.
K.V.K. Alwis, Director of the Payments and Settlements Department, announced ongoing discussions with Indian authorities to allow Sri Lankans to use Sri Lankan rupees in India. This system would be similar to the UPI payment system available to Indian travellers in Sri Lanka.
In November, Sri Lanka experienced a record deflation rate of 2.1%, the highest since 1961, due to significant reductions in energy and volatile food prices. Despite this, CBSL projects inflation to stabilize at a target of 5% in the coming months.
