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The Central Bank has inked an agreement with the Government to uphold a 5% inflation rate, with a permissible 2% variation.
This development falls under the newly enacted flexible inflation targeting law, which mandates the Central Bank to forge an agreement with the Government to sustain inflation at a predefined level.
“This aligns with the stipulations of the newly enacted Central Bank Act, which also aims to facilitate the economy in reaching its potential growth. The inflation target is 5% with a plus or minus 2%.
The variation would be assessed based on a quarterly average of two quarters,” the Central Bank Governor Dr.Nandalal Weerasinghe told journalists at the post-monetary policy review meeting yesterday.
He said the official Gazette to this effect is set to be issued by Monday.
Dr. Weerasinghe expressed optimism, citing the current favourable price trends in the domestic economy, which he believes would play a pivotal role in stabilising inflation at 5% over the medium term. However, he did acknowledge potential challenges.
“Given the recent increases in global petroleum and energy prices and the forthcoming probable tax measures in the 2024 Budget scheduled for November, could lead to a temporary surge in prices, pushing inflation slightly higher,” he added.
If the planned upward adjustments to administratively determined prices and tariffs, including electricity, as well as any tax measures are implemented by the Government, a short-lived upward movement in headline inflation beyond the target is likely in the near term.
Despite the short-term spikes, the Governor expressed confidence in maintaining a 5% inflation target.
