Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100) increased to 1.5% in October 2023 from 1.3% in September 2023. This slight increase in the headline inflation is mostly in line with the projections envisaged by the Central Bank of Sri Lanka (CBSL) in October 2023.

Dr. P. Nandalal Weerasinghe, Governor of the Central Bank of Sri Lanka, attended, by invitation, the Economic Dialogue Series held in Berlin under the theme “Inflation Kills Democracy: Fiscal Rationality as the basis of Functioning Communities” on 21 November 2023. This event was organised by the Federal Ministry of Finance, Germany. Governor Weerasinghe presented Sri Lanka’s success story in reining in inflation following the record high acceleration in 2022. In his speech, he discussed the measures taken by the Central Bank and the Government in curtailing inflation and shared experience on the disinflation strategy and the process. 

The Federal Minister of Finance of Germany, Mr. Christian Lindner; the President of the European Central Bank (ECB), Ms. Christine Lagarde; and Prof. Albrecht Ritschl, London School of Economics, also spoke at the event, among other speakers.

The Monetary Policy Board of the Central Bank of Sri Lanka, at its meeting held on 23 November 2023, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 basis points (bps) to 9.00 per cent and 10.00 per cent, respectively. The Board arrived at this decision following a careful analysis of the current and expected developments in the domestic and global economy, with the aim of achieving and maintaining inflation at the targeted level of 5 per cent over the medium term, while enabling the economy to reach and stabilise at the potential level. The Board took note of possible upside risks to inflation projections in the near term due to supply-side factors stemming from the expected developments domestically and globally. However, the Board viewed that such near-term risks would not materially change the medium-term inflation outlook, as inflation expectations of the public remain anchored and economic activity is projected to remain below par in the near to medium term. Further, the Board viewed that with this reduction of policy interest rates, along with the monetary policy measures carried out since June 2023, sufficient monetary easing has been effected in order to stabilise inflation over the medium term. Hence, 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.

In October 2023, Purchasing Managers’ Indices indicated a softened contraction in Manufacturing activities and an expansion in Services activities.

Manufacturing PMI recorded an index value of 49.5 in October 2023, reaching towards the neutral threshold, during the month. Considering the sub-indices, New Orders and Stock of Purchases increased during the month, while Production and Employment remained contracted.

Services sector PMI recorded an index value of 56.2 in October 2023 indicating continued expansion in the services activities. This was led by the increases observed in New Businesses, Business Activities and Expectations for Activity. Nevertheless, Backlogs of Work and Employment contracted during the month.