Sri Lanka’s Central Bank expects headline inflation to remain negative in the near term in the crisis-stricken island. In its latest policy review, the Central Bank has said that inflation is expected to gradually rise to the target of 5 per cent by mid-2025. The Central Bank maintained the Overnight Policy Rate at 8.00 per cent, emphasizing a balanced approach to support growth while ensuring inflation stabilizes in the coming months.

Meanwhile, the economy recorded a 5.5 per cent year-on-year growth in the third quarter of 2024, surpassing projections, with positive momentum continuing into early 2025. Lower market lending rates have fueled private sector credit expansion, further supporting economic recovery. The ongoing deflation has been driven by lower electricity tariffs and fuel prices.

The bank added that the merchandise trade deficit widened during 2024 compared to 2023, however, improvements in earnings from tourism and workers’ remittances contributed positively to the external current account during this period. The successful completion of external debt restructuring and a 6.1 billion dollar reserve position further bolstered economic confidence.