Deflation expected to end by Q3-2025; economy to grow by around 4.5-pct in 2025: CBSL

The Central Bank of Sri Lanka (CBSL) has released its second Monetary Policy Report for 2025, in line with the transparency and accountability requirements of the new Central Bank of Sri Lanka Act, No. 16 of 2023. The biannual report offers a forward-looking analysis of the economy, with a specific focus on the inflation and economic growth outlook, as well as the potential risks to these projections.

According to the report, the Central Bank is maintaining its relaxed monetary policy stance. This decision is based on the assessment that demand-driven inflationary pressures remain subdued. The report also highlights several key projections for the Sri Lankan economy.

A significant finding in the report is the anticipated end of the deflationary period that began in September 2024. Deflation is expected to cease by the third quarter of 2025. Following this, inflation is projected to gradually increase and reach the Central Bank’s target of 5% by mid-2026, as demand conditions in the economy improve. The report also forecasts that core inflation will follow a similar trajectory, rising gradually before stabilizing in line with the headline inflation target.

Looking at the broader economic picture, the Central Bank projects the economy to grow by approximately 4.5% in 2025. This growth forecast signals continued recovery for the nation’s economy.