‘I want to make it very clear. CBSL does not promote economic growth’: Governor

Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe yesterday rejected the notion that the CBSL’s role was to directly drive economic growth, productivity gains, or foreign direct investment (FDI), arguing instead that its mandate was confined to preserving monetary and financial stability.

The remarks amounted to one of the clearest public attempts yet by the CBSL to draw institutional boundaries around its post-crisis mandate following the enactment of the new Central Bank Act and Sri Lanka’s International Monetary Fund (IMF)-backed stabilisation program.

Addressing questions following the release of the CBSL’s Economic Review 2026, the Governor said there was often a misconception regarding the institution’s mandate and policy tools.

“I want to make it very clear. The CBSL would not promote growth or productivity of the economy,” Dr. Weerasinghe said.

Dr. Weerasinghe acknowledged that productivity growth remained central to Sri Lanka’s long-term economic prospects but said the policy instruments required to improve productivity sat largely outside the CBSL.

He pointed to digitisation, industrial upgrading, and structural reforms as examples of measures capable of lifting productivity and lowering the cost of doing business, but said responsibility for implementing such measures lay with the Government, specialised institutions, and the private sector.

“There are different institutions in the country that are responsible and mandated to improve productivity,” he said.

Dr. Weerasinghe cited digitisation as one avenue through which productivity could improve by reducing the cost of doing business, while noting that industrial productivity and other structural reforms also played a role.

“What we do is maintain price stability and financial system stability,” he said, arguing that macroeconomic stability creates the conditions necessary for private investment and productive activity.

He said macroeconomic stability created the foundation for growth and productivity improvements by providing a predictable environment for investment and business activity. “That is necessary and essential for growth and productivity,” he said.

The Governor also addressed persistent public confusion over inflation and living costs, particularly after Sri Lanka’s inflation shock during the economic crisis.

“Inflation at 5% means the cost of living has increased by 5% compared with 12 months ago,” he said.

Sri Lanka’s inflation rate had surged to around 70% at the height of the 2022 crisis before falling sharply following monetary tightening, fiscal consolidation, and external debt restructuring measures.

“It is difficult, unless there is a little bit of inflation, to see the cost of living coming down. Only the margin will come down,” he said.

On FDI, Dr. Weerasinghe said monetary stability alone was insufficient to attract sustained inflows, noting that legal certainty, policy consistency, institutional quality, and investment facilitation mechanisms also played a significant role.

“There are a lot of other Government policies and institutions that support attracting FDI,” he said.

Responding to questions on interest rates ahead of the next Monetary Policy Review later this month, the Governor reiterated that policy decisions would remain data-dependent rather than guided by short-term market expectations or political considerations.

“We will announce our Monetary Policy Review based on data-driven and empirically-driven decisions by the CBSL,” he said.

He said the CBSL evaluates inflation expectations, growth prospects, external sector developments, and broader macroeconomic conditions when determining policy direction.

Dr. Weerasinghe also signalled that Sri Lanka’s net international reserve targets under the IMF program could be revised following the completion of upcoming program reviews, particularly given evolving external conditions linked to the Middle East conflict and its implications for oil prices, trade balances, and external financing conditions.

He noted that both net international reserve targets and gross official reserve projections were published under the IMF program framework.

Commenting on suggestions by some economists that Sri Lanka may eventually require a further IMF program after the conclusion of the current Extended Fund Facility (EFF) arrangement, Dr. Weerasinghe said no decision had been taken.

“Whether the country wants to go to another program or not will be decided by the authorities. We have not come to that stage yet,” he said.