Business
Sri Lanka’s Runaway Inflation and the Limits of Monetary Policy
by Dr Dushni Weerakoon
The bad news on inflation keeps coming. As of June 2022, year-on-year (YOY) inflation nationally is estimated at an all-time high of 59%. Annual inflation is lagging significantly behind at around 21%, indicative of the speed at which price inflation has been spiralling in recent months. This is in sharp contrast to Sri Lanka’s previous bout of high inflation in 2008 where the YOY increase was far more gradual (Figure 1). Then too, a similar combination of factors was at play. On the external front, a global financial crisis, a spike in international oil prices and sky-rocketing food prices prevailed. On the domestic front, a depressingly familiar combination of unsustainable fiscal, monetary and exchange rate policies were in place.
This time around too, the inflation bout was triggered by a series of macroeconomic policy blunders in managing the fallout of the COVID-19 pandemic; an untenable red hole in public finances, a massive injection of liquidity within a short time span, and an improbable exchange rate policy combined to bring about Sri Lanka’s harshest economic collapse. The inflation ‘pass through’ from the more than 80% currency depreciation that followed amplified the global price increases in food and fuel. The ban on chemical fertiliser use, import controls on food and high costs of transport added to the shortages, driving up prices further.
While Sri Lanka is still well below the commonly used threshold for hyperinflation (monthly inflation exceeding 50%) the rampant inflation this time around is consistent with a serious crisis of confidence across the economy. Monetary policy – i.e. raising interest rates – is the most appropriate tool at hand to fight inflation, but there are limits to its efficacy.
Today, inflationary pressures have intensified the world over with countries like the US and the UK seeing inflation rates hit 40-year highs. Unlike Sri Lanka, the inflation trigger in many of these economies was set off by buoyant demand and tight labour markets as countries emerged from the COVID-19 pandemic. The Russian invasion of Ukraine that followed went on to fuel energy and food price increases and add to supply bottlenecks – already battling a combination of challenges including a resurgence of COVID-19 in China. Almost everywhere, central banks embarked on a monetary policy tightening cycle, with New Zealand and South Korea starting early and aggressively. The intention is to anchor inflation expectations and cut off more persistent strength in nominal wage growth. Thus, the upswing in inflation and interest rate cycles point to a downswing in growth globally in 2022.


Having kept monetary policy too loose for too long, Sri Lanka started its tightening cycle in August 2021, albeit with timid steps – raising policy interest rates by a total of 200 basis points up to March 2022 even as inflation breached double-digit figures in November 2021. This was followed by an aggressive 700 basis point hike in April 2022. It signalled firm intentions to regain the Central Bank of Sri Lanka’s (CBSL) focus on price stability by engineering a reduction in demand through high interest rates and withdrawing liquidity from the economy. Effectively, in the current dire growth outlook for Sri Lanka, the policy intention means forcing a recession to tame inflation.
In choosing between the options of an aggressive hike that will lead to a recession or tolerating a prolonged inflationary spiral bordering on hyperinflation, the former is preferable. Once inflation takes hold, the damage can be corrosive, especially its deeply regressive impacts on lower income households. But a contractionary strategy to suppress demand will not achieve the desired outcomes if (a) inflation expectations are not well anchored and people expect rapid price increases to continue, and (b) supply side factors remain unaddressed.
A sector-wise breakdown of the National Consumer Price Index (NCPI) and the Colombo Consumer Price Index (CCPI) of YOY inflation in June 2022 shows that demand-driven domestic inflationary pressures appear to be responsible for much less of the rise in headline inflation. Food price increases are contributing the largest share of 36% towards the YOY national increase in inflation in the NCPI (carrying a weight of 44%) while it contributes a similarly large share of 26% in the CCPI (with a weight of 28%). Transport is the second largest contributor (8-11%) in both indices. Overall, the strength of inflation appears to mainly reflect the large increases in energy and food prices; in fact, when inflation is driven largely by excess liquidity and demand, price increases across goods and services tend to be more uniform.
With runaway inflation, tightening monetary policy hard and fast was almost inevitable to anchor inflation expectations. The policy will work though only if fiscal adjustments evolve in line with monetary policy. Sharp interest rate increases make government debt even more expensive to service, and when interest rates exceed economic growth, a country’s indebtedness keeps rising. Higher interest rates in the current context of a crisis of confidence overall in the economy, and especially on exchange rate risks, means that it will not be reflected in stronger capital inflows to stabilise the rupee either.
Upward pressure on inflation in Sri Lanka will not dissipate immediately. Continued direct financing of Treasury spending by the CBSL, high global energy and food prices, and continuing domestic supply-side factors – food and fuel shortages, import policies, and related market distortions – will add to price increases. Thus, the current upswing in real interest rates will likely go further if it appears that the policy mix is unable to reverse the inflation trend.
At this crucial juncture, prompt action on all macroeconomic policy fronts simultaneously is essential to help the CBSL put price stability at the core of Sri Lanka’s monetary policy framework and better anchor inflation expectations. If workers and businesses are unconvinced that runaway inflation is firmly in check, higher price expectations will feed back into the process, making the fight against inflation even harder. It will also delay the recovery from recessionary conditions – through cuts in investments and shortening of investment horizons that ultimately hurt employment and jobs – as the country looks to ease back from the current economic crisis.
Link to the blog – https://www.ips.lk/talkingeconomics/2022/07/27/sri-lankas-runaway-inflation-and-the-limits-of-monetary-policy/
Business
The eternal pilgrimage of Hajj: A journey through faith, sacrifice and humanity
Every year, the spiritual compass of the Muslim world turns towards the holy city of Makkah, where millions of pilgrims gather for Hajj — one of humanity’s oldest and most profound journeys of faith.
This year, too, the sacred valleys of Saudi Arabia are filled with the echoes of “Labbaik Allahumma Labbaik” — “Here I am, O Allah, here I am” — as Muslims from every continent respond to a divine call that dates back thousands of years to Prophet Ibrahim (Abraham).
Among them are thousands of Sri Lankan pilgrims, dressed in simple white garments, leaving behind worldly status, wealth and identity in pursuit of spiritual purification and closeness to God.
According to Muslim Affairs authorities, the Kingdom of Saudi Arabia has allocated a Hajj quota of 3,500 pilgrims for Sri Lanka for Hajj 2026, enabling devotees from across the island to undertake the sacred pilgrimage. The annual allocation is determined through agreements between Saudi Arabia and Muslim-majority and minority nations worldwide.
Since early this month at the Bandaranaike International Airport in Katunayake, emotional scenes unfolded as families bade farewell to departing pilgrims with tears, embraces and prayers.
Elderly parents clutched prayer beads, children waved anxiously, while relatives sought blessings from loved ones embarking on the once-in-a-lifetime spiritual journey.
For many Sri Lankan Muslims, performing Hajj is not simply travel — it is the fulfilment of a lifelong dream nurtured through years of prayer, sacrifice and savings.
In villages, towns and cities across Sri Lanka, preparations for Hajj often begin months or even years in advance. Some families save gradually over decades, while elderly pilgrims regard the journey as the culmination of a lifetime of devotion.
Hajj is the fifth pillar of Islam and is obligatory for every financially and physically able Muslim at least once in a lifetime.
Yet the pilgrimage is far more than a religious obligation.
It is a journey deeply rooted in the story of Prophet Ibrahim, known as Abraham in Christianity and Judaism, and revered across the Abrahamic faiths as a towering symbol of faith, obedience and sacrifice.
Islamic tradition recounts how Prophet Ibrahim was commanded by Allah to leave his wife Hajjar and infant son Ismail in the barren desert valley of Makkah. With unwavering faith in God’s wisdom, Ibrahim obeyed.
Left in the scorching desert with little water or food, Hajjar desperately searched for water for her thirsty child, running seven times between the hills of Safa and Marwa.
Her determination, courage and trust in God are immortalised in the rituals of Hajj today.
Pilgrims reenact Hajjar’s desperate search by walking between Safa and Marwa, symbolising perseverance, faith and hope even in moments of despair.
According to Islamic belief, Allah answered Hajjar’s prayers by causing the miraculous Zamzam well to spring forth beneath baby Ismail’s feet — a well that continues to provide water to millions of pilgrims centuries later.
Another defining moment in Ibrahim’s story is commemorated during Hajj and Eid-ul-Adha — the willingness of the Prophet to sacrifice his beloved son in obedience to God’s command.
As Ibrahim prepared to carry out the sacrifice, Allah replaced Ismail with a ram, signifying that faith, sincerity and submission were greater than the act itself.
The symbolic stoning of the devil during Hajj recalls Ibrahim’s rejection of Satan’s temptations that sought to discourage him from obeying God.
Thus, every ritual of Hajj carries profound historical and spiritual meaning.
The pilgrimage is not simply movement through sacred spaces; it is a reenactment of timeless lessons in obedience, sacrifice, patience and devotion.
One of the most remarkable aspects of Hajj is the extraordinary equality it represents.
Pilgrims, regardless of nationality, race, language or social class, wear the same simple white attire, known as Ihram.
Presidents, businessmen, labourers and farmers stand side by side in prayer, under the blazing Arabian sun, erasing worldly distinctions and affirming the Islamic belief that all human beings are equal before God.
Religious scholars often describe Hajj as the world’s greatest annual demonstration of unity and humility.
The spiritual climax of the pilgrimage occurs at the plains of Arafat, where pilgrims spend hours in prayer and repentance seeking divine forgiveness.
Many Muslims believe that a sincerely accepted Hajj cleanses a believer of past sins and marks the beginning of a spiritually renewed life.
Upon returning home, pilgrims are honoured with the title “Hadji” or “Hajji,” a distinction that carries immense respect within Muslim communities, including in Sri Lanka.
Traditionally, a Hadji is viewed as someone who has fulfilled one of Islam’s most sacred obligations and returned with heightened spiritual responsibility.
However, Islamic scholars emphasise that the title is not merely ceremonial.
“The true significance of becoming a Hadji lies in personal transformation,” a Colombo-based Islamic scholar said.
“A pilgrim is expected to return with greater humility, compassion, honesty and social responsibility. Hajj is not about status; it is about becoming a better human being.”
Across Sri Lanka, mosques have been conducting special prayers for pilgrims, while families gather to seek blessings before departure.
The pilgrimage season also creates a unique emotional atmosphere within Muslim communities, where neighbours visit departing pilgrims and homes become centres of prayer and reflection.
Saudi Arabia has introduced extensive arrangements this year to facilitate the pilgrimage, including digital crowd management systems, improved transport networks, upgraded accommodation and enhanced healthcare services.
Sri Lankan diplomats and officials, stationed in Saudi Arabia, have been coordinating closely with Saudi authorities to ensure the welfare and smooth movement of Sri Lankan pilgrims throughout the pilgrimage period.
Sri Lanka’s Ambassador to Saudi Arabia, Ameer Ajwad, recently inspected facilities in Mina, prepared for Sri Lankan pilgrims, and reaffirmed efforts to provide a safe and spiritually fulfilling Hajj experience.
As millions circle the Holy Kaaba in prayer, Hajj continues to stand as one of the most extraordinary gatherings on Earth — a timeless spiritual movement connecting humanity across borders, cultures and generations.
For Sri Lanka’s pilgrims, the sacred journey is not merely a passage to Makkah.
It is a journey into the soul — a return to the eternal lessons of Prophet Ibrahim, Hajjar and Ismail — lessons of sacrifice, endurance, obedience and unwavering faith that continue to inspire humanity centuries later.
By Ifham Nizam
Business
‘Green Chilies’ returns after seven years to reignite Sri Lanka’s advertising industry spirit
After a seven-year hiatus, one of Sri Lanka’s most loved advertising industry gatherings is making a much-anticipated return. Green Chilies 2026, the iconic festival that once defined the fun, camaraderie and creative spirit of Sri Lanka’s advertising fraternity, returns on 4th June 2026 at Rise Up, Colombo 03, bringing together professionals from across agencies, media, digital, production and marketing for an evening of celebration, entertainment, and industry camaraderie.
Originally launched in 2011, Green Chilies was conceived as a platform to celebrate Sri Lanka’s Young Lions winners as they embarked on their journey to represent the country at the prestigious Cannes Lions International Festival of Creativity, while also creating a unique opportunity for the industry to come together outside boardrooms and deadlines.
This year’s revival comes at an especially meaningful time, as an entire new generation of industry professionals have entered the business without ever experiencing the culture and energy that made Green Chilies such a defining event. Some key highlights will be the recognition of the winners of the young Lions competition and the much-loved return of The Agency Idol, the wildly entertaining competition where agencies battle it out on stage in a spirited showcase of talent, humour, and creativity, bringing back one of the event’s most iconic traditions.
Speaking about the return of the festival, Ranil de Silva, Founder of Green Chilies and of Metal Factor, said: “When we first launched Green Chilies, the idea was simple. It was to celebrate our Young Lions and create something that brought the industry together as one community. Over the years it became far more than an event, it became part of our industry culture. Seeing it return after seven years is very special, particularly because so many young professionals will now get to experience the spirit that made this industry such a fun and inspiring place to be.”
Green Chilies 2026 is organized by Metal Factor and supported by the 4A’s Sri Lanka.
Event Details:
Venue: Rise Up, Alwis Place, Colombo 03
Date: Thursday, 4th June 2026
Time: From 6.30 PM onwards
Contact : Shelley +94 77 342 3123
Business
JKH posts 75% EBITDA growth to Rs.80.01 billion as recent investments begin to contribute
John Keells Holdings PLC (JKH) reported a strong financial performance for FY2025/26, with Group EBITDA increasing 75% to Rs.80.01 billion, reflecting the contribution of investments made over the past several years and the continued performance of the Group’s established businesses.
Group recurring EBITDA increased 71% to Rs.78.05 billion, compared to Rs.45.69 billion in the previous year, driven primarily by Retail, Transportation and Leisure. Recurring profit before tax rose 143% to Rs.35.72 billion, while recurring profit attributable to equity holders of the parent increased 155% to Rs.13.24 billion.
The year also marked the culmination of the largest investment phase in the Group’s history, with the operationalisation of key investments signalling a shift in the capital cycle from development to contribution. Overall funding requirements reduced materially in line with expectations, while net debt to EBITDA stood at approximately 2 times and net debt to equity at approximately 31%.
City of Dreams Sri Lanka recorded positive EBITDA for the full year, following the completion and launch of the remaining components of the integrated resort. Cinnamon Life’s conference and event spaces attracted interest from local and international organisers, while casino operations showed an encouraging pick-up from the fourth quarter onwards.
Colombo West International Terminal, the project company of WCT-1, recorded strong throughput growth during the year, supported by an improving volume mix. The business delivered a positive profit after tax ahead of expectations, despite recognising depreciation relating to phase 1, and has reached full utilisation of phase 1 capacity based on its latest monthly run-rate.
John Keells CG Auto recorded an exceptional year, supported in part by pent-up demand and the brand positioning and vehicle range of BYD.
The Supermarket business recorded approximately 14% growth in same store sales, driven primarily by a 14.3% increase in footfall. The Beverages and Confectionery businesses recorded strong volume growth, with Beverages benefiting from higher margins, while Confectionery margins were impacted by higher raw material costs and expenses linked to new product introductions.
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