Former Finance Minister Ravi Karunanayake has formally asked President Anura Kumara Dissanayake — who also holds the finance portfolio — to reduce the Central Bank of Sri Lanka’s medium-term inflation target from 5% to 2% at the statutory review due in October.

The current Monetary Policy Framework Agreement (MPFA) was signed on 5 October 2023 by then-Finance Minister Ranil Wickremesinghe and CBSL Governor Dr. Nandalal Weerasinghe under the Central Bank of Sri Lanka Act No. 16 of 2023. The Act requires the inflation target and its associated parameters to be reviewed every three years, and that statutory review point falls in October 2026.

In a letter dated 10 June, Karunanayake — Finance Minister from 2015 to 2017 — argued that the 5% anchor may have been appropriate during the post-default adjustment but is no longer suitable for a country still rebuilding household purchasing power. “Inflation erodes real incomes, destroys savings, weakens the currency, increases poverty, discourages investment and undermines confidence in economic institutions,” he wrote, calling it a “hidden tax on society.”

Karunanayake also flagged the risk of stagflation, noting that private investment, credit growth and industrial output remain subdued even as inflation has rebuilt. Headline inflation reached 5.4% in April and 5.5% in May after sitting below the 3% lower bound since March 2024, with a recent fuel price hike feeding the rebound. He argued that much of the inflation since the crisis has been cost-push and imported — driven by exchange-rate depreciation, fuel and food prices, tariff adjustments and balance-of-payments stress — rather than domestic demand.

The intervention sharpens the debate already underway. CBSL Governor Nandalal Weerasinghe told the Committee on Public Finance last month that cutting the target to 2% would force growth-killing rate hikes, warning that a 5%-growth and 2%-inflation policy mix would be internally inconsistent. The 3%–7% operating band currently sits around the upper end of the Governor’s own 7% risk warning, with the rupee having weakened roughly 5% so far this year.

Source: Sri Lanka CB seeks public consultation on inflation target review — EconomyNext, June 19.