The external sector continued its positive momentum in October 2024, supported by robust inflows to the current account, resulting in an increase in reserves and an appreciation of the Sri Lanka rupee.
In line with the Central Bank’s near term projections, headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100)1 remained in the negative territory for the third consecutive month, recording a deflation of 2.1% in November 2024 compared to the deflation of 0.8% in October 2024.
Sri Lanka Purchasing Managers’ Index for Construction (PMI - Construction) rebounded in October 2024, recording a Total Activity Index value of 54.3. Many respondents mentioned that the operations in construction projects regained momentum in October, following the resolution of election-related uncertainties.
The Monetary Policy Board of the Central Bank of Sri Lanka, at its meeting held on 26 November 2024, decided to further ease the monetary policy stance and set the newly introduced Overnight Policy Rate (OPR) at 8.00 per cent. With this change, the effective reduction in the policy interest rate would be around 50 basis points from the current level of the Average Weighted Call Money Rate (AWCMR), which continues to serve as the operating target of the Flexible Inflation Targeting ( FIT) framework.
As announced in the Central Bank’s Annual Policy Statement in January 2024 and the subsequent announcement in September 2024 of the planned implementation of the single policy interest rate mechanism, the Monetary Policy Board of the Central Bank of Sri Lanka decided to implement a single policy interest rate mechanism transitioning from its dual policy interest rate mechanism, with effect from 27 November 2024. This marks another significant improvement in the Flexible Inflation Targeting (FIT) framework implemented by the Central Bank. Accordingly, the Central Bank introduces the Overnight Policy Rate (OPR), as its primary monetary policy tool to signal and operationalise its monetary policy stance. The OPR will be periodically reviewed and adjusted as needed by the Central Bank to indicate and communicate a change in its monetary policy stance. This transition is expected to enhance the efficiency and effectiveness of monetary policy signalling and transmission to the financial markets and the broader economy.
By virtue of the powers vested under Section 19 (1) read together with section 19 (2) of the Financial Transactions Reporting Act, No. 6 of 2006 (FTRA), penalties are imposed on Institutions for non-compliance with the provisions of the FTRA. The penalty may be prescribed taking into consideration the nature and gravity of relevant non-compliance of the Institutions.