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Monetary Board increases interest rates drastically to tackle runaway inflation; highest levels in 21 years
The Monetary Board on Wednesday (06) increased the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 basis points to 14.50 per cent and 15.50 per cent, respectively.That had been done to tackle rising domestic inflation, the Central Bank of Sri Lanka (CBSL) said, explaining the reasons for the Monetary Board decision, adding that these rates are at the highest in 21 years.
he Bank said it had noted a higher-than-expected increase of headline inflation recently.The high inflation is expected to remain in the period ahead, thus the Monetary Board was of the view that a further monetary policy tightening would be necessary to contain any build-up of adverse inflation expectations.The CBSL said that the policy adjustments would help Sri Lanka stabilise its inflation to between 4 and 6 percent in the medium term.
The Bank said that they considered the impact of tighter monetary conditions on overall economic activity, including the micro, small, and medium scale businesses, and the financial sector performance, among others, against far reaching adverse consequences of any escalation of price pressures across all sectors of the economy in the near term.
The Bank raised rates by 700 basis points in April but made no further moves at its previous policy meeting in May.
Excerpts of the CBSL statement: “Central banks have become increasingly hawkish across the globe Central banks from around the world continue to tighten their monetary policies to counter sustained inflationary pressures, exacerbated by high petroleum and food prices arising from geopolitical tensions, and destabilising inflation expectations.
“Nevertheless, the outlook for the global economy has deteriorated recently amidst the global spread of inflation, substantial interest rate hikes, and escalation of geopolitical tensions. The unfolding of these events could have large negative spillover effects on emerging markets and developing economies in the period ahead.
“Domestic economic activity is expected to record a notable downturn in the near term As per the GDP estimates published by the Department of Census and Statistics (DCS), the Sri Lankan economy is estimated to have recorded a contraction of 1.6 per cent, year-on-year, in the first quarter of 2022. Domestic economic activity during the second quarter of 2022 is expected to have been severely affected by the continued supply side disruptions, primarily due to the shortages of power and energy.
“Amidst adverse developments on the domestic front, geopolitical tensions in Eastern Europe that have affected global commodity markets and supply chains could pose further risks to domestic economic growth in the near term.
“The trade deficit narrowed significantly in May 2022 over the corresponding period of last year, largely supported by the policy measures that were aimed at discouraging non urgent imports, alongside the constrained foreign exchange liquidity in the domestic foreign exchange market.
“Foreign exchange inflows in the form of workers’ remittances and tourism earnings remain lower than expected, impacted by unfavourable conditions both domestically and globally. The exchange rate, which underwent a severe bout of depreciation in March 2022, remains broadly stable with the introduction of market guidance from mid-May 2022.
“Gross official reserves, as at end June 2022, are estimated at US dollars 1.9 billion, including the swap facility from the People’s Bank of China equivalent to around US dollars 1.5 billion, which is subject to conditionalities on usability. Significant progress has been made with respect to negotiations with the International Monetary Fund (IMF) towards reaching a staff-level agreement on the Extended Fund Facility (EFF) arrangement in the near term, while negotiations with several bilateral and multilateral partners are ongoing to secure bridging financing. Moreover, expeditious arrangements are being made with regard to the external debt restructuring process.
“Ensuring external sector stability and overall macroeconomic stability requires commitment from all stakeholders of the economy, given the unprecedented balance of payments pressures and severe stresses experienced at present across all sectors of the economy.
The measures introduced by the Central Bank to ensure domestic monetary stability and external stability of the Sri Lanka rupee, need to be supported by coherent and consistent actions on the part of the Government, state-owned enterprises, private sector corporates, and banking and non-banking financial institutions, among others. Such co-ordinated response to crisis management would ensure public support and eventually help bring about normalcy to economic activity in the period ahead.”
News
Justice Minister hits back at CLA
By Saman Indrajith
Justice Minister Harshana Nanayakkara yesterday told Parliament that the Commonwealth Lawyers’ Association (CLA) was not an organisation officially recognised or registered under the Commonwealth Secretariat, but a fee-levying private association.
Responding to a question by Opposition and SJB Leader Sajith Premadasa on why he had failed to meet CLA representatives, who recently visited Sri Lanka, Nanayakkara said he had offered them a date and time for a meeting, but they had been unable to attend.
The Commonwealth Lawyers Association (CLA) has questioned procedural fairness and other matters of concern in a report that deals with the Supreme Court hearing petitions against the 22nd Amendment to the Constitution. Among the issues raised by CLA President Steven Thiru, is the composition of the five-member bench.
The Minister said the CLA representatives subsequently requested another date, but he had already scheduled official engagements for the proposed day.
Nanayakkara said it was, therefore, incorrect to claim that he had refused to meet the CLA delegation.
“The CLA is not an official body accepted or admitted into the Commonwealth of countries. It is a private club whose members pay fees for membership,” he said.
However, the Minister said he was not suggesting that the organisation was “a bad organisation”, adding that the accuracy of several statements made by CLA members during their visit to Sri Lanka had yet to be established.
Nanayakkara identified lawyer Upul Jayasuriya as the CLA’s local representative and said Jayasuriya had sought a meeting with him.
“I gave him the opportunity, but he came up with the excuse that he could not make it as he was not in Colombo. Therefore, it is wrong to state that I did not give them time,” the Minister said.
News
First visit by an Indian Defence Minister since IPKF deployment
By Shamindra Ferdinando
Indian Defence Minister Rajnath Singh is in Colombo on a three-day official visit, the first by an Indian Defence Minister since the 1988 visit by K.C. Pant, during Rajiv Gandhi’s tenure as the Prime Minister.
The Indian Defence Ministry declared that the visit would further strengthen the traditionally strong and friendly bilateral relations in mutually beneficial areas, including a strong maritime and defence partnership.
The visit takes place in the wake of Sri Lanka and India signing seven MoUs, including one on defence, in April 2025. Communist Party General Secretary Dr. G. Weerasinghe told The Island that the government should set the record straight regarding the rapidly developing military relations with the US and India. The acquisition of Colombo Dockyard Ltd., by Indian Defence Ministry-run Mazagon Dock Shipbuilders Limited, soon after the finalisation of MoUs, underscored New Delhi’s strategy, Dr. Weerasinghe said. Responding to another query, Dr. Weerasinghe said that the government should take this opportunity to discuss the Tamil Nadu fishing fleet poaching on Sri Lankan waters.
Pant visited during the Indian Army operations against the Liberation Tigers of Tamil Eelam (LTTE) in the Northern and Eastern Provinces here, while Pranab Mukherjee visited Colombo, in August 2005, to pay last respects to assassinated Foreign Minister Lakshman Kadirgamar.
Indian and Sri Lanka governments said that the visit was meant to strengthen cooperation between the two neighbouring countries in the fields of defence, economic engagement, maritime affairs and regional security.
An Indian warship arrived at the Colombo harbour ahead of the Defence Minister’s visit, reminiscent of old gunboat diplomacy. INS Udayagiri’s visit coincided with the Defence Minister’s visit. The Defence Minister’s delegation included senior officials from Ministry of External Affairs.
During the visit, the Indian Defence Minister is scheduled to hold high-level discussions with President Anura Kumara Dissanayake who also holds the Defence portfolio, Prime Minister Dr. Harini Amarasuriya and Defence Secretary Sampath Thuyacontha. He is also expected to meet members of the Indian community, residing in Colombo.
Dr. Weerasinghe said that the NPP government conveniently extended the moratorium on foreign research vessels imposed during Ranil Wickremesinghe’s tenure in 2024. The CP official said that the media alleged that that decision was taken at the behest of the US and India but nearly two years after the last presidential election the ban remains.
News
“I’m not a war criminal, I fought for my country”: Shavendra Silva
Former Army Commander and Chief of Defence Staff General Shavendra Silva has rejected allegations of wrongdoing during the final stages of war against the LTTE, declaring his readiness to answer specific accusations against him and questioning the basis on which he has been sanctioned internationally.
In an interview with India-based “Impact Stories,” retired General Silva said the Sri Lankan military had fought the Liberation Tigers of Tamil Eelam (LTTE) professionally and had sought to minimise civilian casualties during the final military offensive.
Silva, who commanded the Army’s 58 Division during the final phase of the war in 2009, said he had repeatedly sought an explanation for sanctions imposed on him.
“I have been sanctioned by the United States of America, and I was sanctioned recently by the United Kingdom. For what? I have been asking, tell me what I have done wrong,” Silva queried.
“I’m not a war criminal. I fought for my country,” he added, arguing that if he had violated military law, he should have been investigated and punished under the appropriate mechanisms.
The United States imposed travel restrictions on Silva and his immediate family in 2020, citing what it described as credible information of his involvement, through command responsibility, in alleged gross violations of human rights during the final phase of the war. The United Kingdom later imposed sanctions on Silva in 2025 over alleged human rights violations during the conflict.
Silva rejected allegations that the military deliberately targeted civilians, while acknowledging that civilian deaths could have occurred during the fighting.
“There would have been deaths of civilians, but those are not intentional,” he said, adding that military planning sought to minimise civilian casualties and that targets were avoided when civilians were observed nearby.
Recalling the final stages of the offensive, Silva said his division rescued more than 123,000 civilians and that more than 75% of, approximately 12,000 LTTE members, who surrendered at the end of the conflict, had surrendered to his division.
He said surrendered LTTE members were subsequently rehabilitated and reintegrated into society, arguing that this demonstrated the military’s approach toward those who laid down their weapons.
Silva also recalled an “encirclement operation” in which he said a large number of LTTE bodies were recovered. He said a senior LTTE northern commander was among those found dead and was dressed in civilian clothes while carrying a weapon.
“One could say a civilian was killed. No, he was the LTTE northern commander,” Silva said, arguing that combatants wearing civilian clothing could subsequently be counted as civilian casualties.
Silva also accused the LTTE of using civilians as human shields, preventing people from leaving areas under its control and positioning military assets near civilian locations during the final stages of the conflict.
He criticised successive Sri Lankan governments for what he described as a failure to effectively present the military’s account of the war internationally, saying this had allowed allegations against Sri Lankan troops to gain traction overseas.
Silva called on governments and international organisations making allegations against Sri Lankan forces to engage directly with those accused and present specific incidents for explanation.
“Come to a dialogue,” he said. “Tell us, ‘You all had done this on this particular day, at this particular time,’ so that we can clarify.”
“If we have done something, we will accept,” he added.
Silva also rejected claims that the LTTE represented the wider Tamil community, saying grievances should be addressed politically rather than through armed violence. He cited the LTTE’s assassinations, suicide attacks and forced recruitment while arguing that entire ethnic or religious communities should not be blamed for the actions of the organisation or its supporters.
The former Army Commander said the military’s objective had been to defeat the LTTE and free civilians from its control, while maintaining that Sri Lankan troops did not intentionally commit abuses against civilians.
Sri Lanka’s final military offensive remains the subject of longstanding international scrutiny. United Nations investigations and international human rights organisations have alleged serious violations of international humanitarian and human rights law by both government forces and the LTTE during the final stages of the conflict. Sri Lankan military leaders, including Silva, have repeatedly rejected allegations that government forces deliberately targeted civilians.
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