Deflation temporary, growth momentum continues into 2025: CBSL officials

Tuesday, 20 May 2025 03:36 - - {{hitsCtrl.values.hits}}

CBSL Assistant Governor Dr. C. Amarasekara says brief phase of deflation is not alarming
CBSL Economic Research Department Director Dr. S. Jegajeevan disqualifies current environment being classified as ‘stagflation’
Points to robust credit growth as evidence of rising demand; Q1 credit expands to Rs. 274.6 b

By Charumini de Silva

Central Bank of Sri Lanka (CBSL) Assistant Governor Dr. C. Amarasekara recently said that the recent spell of deflation in Sri Lanka is expected to be short-lived, lasting no more than two to three months.

Speaking at the Q&A session following the CBSL’s public lecture on ‘State of the Economy as Reflected in the Annual Economic Review 2024’ last Friday, he acknowledged the unusual deflationary trend in recent months, attributing it primarily to supply-side factors.

“Lower electricity tariff cycles resulting from three successive downward revisions and reduced fuel prices are the main contributors. However, these are growth-positive developments as they lower input costs for businesses,” Dr. Amarasekara said.

He recalled that the economy is recovering from a period of extreme inflation, which peaked at 70% in September 2022. “Given this background, a brief phase of deflation is not alarming,” he noted, adding that inflation is expected to return to positive territory in the coming months.

CBSL Economic Research Department Director Dr. S. Jegajeevan reinforced this optimism, stating that 2024 saw notable economic growth, disqualifying the current environment being classified as ‘stagflation,’ where both growth and inflation decline.

She pointed to the robust credit growth as evidence of rising demand. “In 2024, the country’s private sector credit grew by 10.7% to Rs. 790 billion due to increased economic activity. In March 2025, it has already expanded by Rs. 173.2 billion, bringing the total credit expanded in the first three months of the year to Rs. 274.6 billion. This indicates that economic activity and demand are picking up and the positive momentum is continuing into 2025,” she pointed out.

Dr. Jegajeevan confirmed that both inflation and demand-side conditions are being closely monitored to ensure macroeconomic stability.

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