Downward adjustment in electricity tariff triggering deeper deflation – CBSL Governor

By Hiran H.Senewiratne

The latest projections have indicated deeper deflation than previously projected, mainly due to the more than anticipated downward adjustment in the electricity tariff announced in January 2025, Central Bank of Sri Lanka (CBSL) Governor Dr Nandalal Weerasinghe said.

“Inflation is expected to turn positive from mid-2025 and converge towards the targeted level of 5 per cent over the medium term, supported by appropriate policy adjustments, Governor Weerasinghe said at the monthly Monetary Policy Review Meeting held at the Central Bank head office in Colombo.

Dr Weerasinghe said that headline inflation, as measured by the year-on-year change in the Colombo Consumer Price Index (CCPI), remained in negative territory for the fourth consecutive month in December 2024.

Dr Weerasinghe added: “This was mainly driven by the previous downward revisions to electricity tariffs and domestic fuel prices, amidst subdued demand pressures.

“Latest projections indicate deeper deflation than previously projected, mainly due to the more than anticipated downward adjustment in the electricity tariff announced in January 2025.

“Inflation is expected to turn positive from mid-2025 and converge towards the targeted level of 5 per cent over the medium term, supported by appropriate policy adjustments. Core inflation, which is currently in lower positive levels, is projected to decelerate further over the next few months, before adjusting upwards thereafter.

“Further, the Monetary Policy Board of the Central Bank has decided to maintain the Overnight Policy Rate (OPR) of the Central Bank at its current level of 8.00 per cent.

“The Board has arrived at this decision, at its meeting held this week following a careful analysis of the current and expected macroeconomic developments on the domestic and global fronts.

“This decision was made with a medium-term view of ensuring that inflation converges to the target of 5 per cent, while supporting the economy to reach its potential.

“The Board observed that the current period of deflation, as projected earlier, has largely been an outcome of administratively determined energy price reductions.

“This trend is expected to continue over the next few months before inflation begins adjusting towards the targeted level in the second half of 2025.”