Sri Lanka’s Central Bank foresees deeper deflation ahead

The CBSL has revised its inflation outlook, predicting a deeper deflationary trend than initially expected, primarily due to the significant electricity tariff reduction implemented in January 2025. 

As a result, the Central Bank expects inflation to remain negative in the short term, with a potential turnaround toward positive growth by mid-2025. Over the medium term, inflation is projected to gradually align with the CBSL's 5% target, supported by necessary policy adjustments.

Headline inflation remained in the negative territory for the fourth consecutive month in December 2024, largely driven by the sharp decrease in electricity and fuel prices. 

The CBSL's forecast reflects the ongoing efforts to stabilize the economy, with a careful balancing of policy measures to manage inflationary pressures while supporting broader economic growth.