FINANCIAL CHRONICLE – The Sri Lankan government has set an inflation target of 5 percent for the next three years, extending through October 2029. This decision was formalized through a recent agreement between the government and the Central Bank, as announced in a statement on Friday.

The new Monetary Policy Framework Agreement (MPFA) was signed on Thursday, October 1, by President Anura Kumara Dissanayake, who also serves as the Minister of Finance, and Central Bank Governor Nandalal Weerasinghe.

Under the provisions of the MPFA, the Central Bank is tasked with keeping the quarterly headline inflation rate at 5 percent, with a permissible variation of ±2 percentage points. This stipulation means that inflation should ideally remain between 3 percent and 7 percent.

This decision comes in the wake of the Central Bank’s inability to adhere to its inflation target, having exceeded the upper limit of 7 percent for the past three months. The Bank attributed this shortfall to rising energy prices resulting from ongoing conflicts in the Middle East.

The revised Central Bank Act mandates that inflation targets and related metrics be assessed every three years, although they may be reviewed sooner in the event of extraordinary circumstances.

The Central Bank stated that the review involved a thorough technical evaluation, taking into account Sri Lanka’s economic landscape, historical data, monetary policy nuances, the framework’s credibility, stakeholder perspectives, and global practices.

Following this assessment, the Central Bank presented its recommendations to the Ministry of Finance, which subsequently accepted the proposal after thorough deliberation.

Some critics contend that a 5 percent inflation target is excessive and argue for a reduction to 2 percent. However, the Central Bank has warned that such a decrease could negatively affect the country’s economic growth. (Colombo/October 02/2026)