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CCPI based headline inflation decelerated sharply in March 2024

Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100) decelerated sharply to 0.9% in March 2024 from 5.9% in February 2024. This deceleration in the headline inflation is broadly in line with the projections of the Central Bank of Sri Lanka (CBSL).

Non-Food Category recorded a deflation (Y-o-Y) of 0.5% in March 2024 compared to the inflation of 7.0% observed in February 2024. Nevertheless, food inflation (Y-o-Y) accelerated to 3.8% in March 2024 from 3.5% in February 2024. Monthly change of CCPI recorded -1.94% in March 2024 due to the price decreases of 0.66% observed in the items of Food category and decreases of 1.28% observed in Non-Food category items. Meanwhile, core inflation (Y-o-Y), which reflects the underlying inflation trends in the economy, accelerated to 3.1% in March 2024 from 2.8% in February 2024.

SL Purchasing Managers’ Index (PMI) for Construction Industry – February 2024

Sri Lanka Purchasing Managers’ Index for Construction (PMI – Construction) indicates an expansion in construction activities in February 2024, as reflected by the Total Activity Index, which recorded an index value of 57.1. Many firms attributed the growth in construction activities to the current conducive environment and the resumption of several temporarily suspended projects. 

External Sector Performance - February 2024

Both import expenditure and export earnings increased in February 2024, compared to a year ago. However, as the increase in imports surpassed that of exports, the trade deficit widened. Also, import expenditure in February declined notably compared to previous month, led by lower fuel imports. 

Services sector recorded notable net inflows in terms of earnings from tourism, sea transport, air transport, and computer and IT/BPO related services. 

Workers’ remittances continued to record improvements on year-on-year basis in February 2024 as well.

In February 2024, foreign investment to the Colombo Stock Exchange (CSE) recorded the highest monthly net inflow since February 2022, while there was a net outflow from the government securities market.

Gross Official Reserves stood at US dollars 4.5 billion by end February 2024 and the Sri Lanka rupee appreciated by 7.6 per cent against the US dollar during the year up to 28 March 2024.

The Central Bank of Sri Lanka Further Reduces Policy Interest Rates

The Monetary Policy Board of the Central Bank of Sri Lanka, at its meeting held on 25 March 2024, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 50 basis points (bps) to 8.50 per cent and 9.50 per cent, respectively. The Board arrived at this decision following a comprehensive assessment of current and expected domestic and international economic developments, to maintain inflation at the targeted level of 5 per cent over the medium term, while enabling the economy to reach its potential. In arriving at this decision, the Board took note of, among others, subdued aggregate demand conditions, the lesser-than-expected impact of the recent changes to the tax structure on inflation, favourable near-term inflation dynamics due to the recent adjustment to electricity tariffs, well-anchored inflation expectations, the absence of excessive external sector pressures and the need to continue the downward trajectory in market interest rates. The Board observed that the possible upside risks to inflation in the near term would not materially change the medium-term inflation outlook, as economic activity is projected to remain below par for an extended period. The Monetary Policy Board underscored the need for a swift and full passthrough of monetary easing measures to market interest rates, particularly lending rates, by the financial institutions, thereby accelerating the normalisation of market interest rates in the period ahead.

CBSL senior management to revisit recent salary revision

The recent salary revision for the period 2024-2026 made by the Central Bank of Sri Lanka (CBSL), post the collective agreement between the Governing Board and the employee representatives, created much discourse among the public.

In response to this situation, a majority of the senior management and professionals of CBSL made a collective decision to consider a revision to their salaries. This decision was communicated to the Committee on Public Finance (COPF) on 16th March 2024, prior to and independent of the recommendations made by COPF.

IMF Reaches Staff-Level Agreement on the Second Review of Sri Lanka’s Extended Fund Facility and Concludes the 2024 Article IV Consultation

An International Monetary Fund (IMF) mission visited Sri Lanka during 07 - 21 March 2024 for the second review of the 4-year Extended Fund Facility (EFF) arrangement and the 2024 Article IV consultation. Subsequent to the mission, the IMF staff team and the authorities have reached stafflevel agreement on economic policies to conclude the second review of the IMF-EFF.

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