While low interest rates have helped revive credit and contributed to improving the overall business sentiment, they could also disproportionately hurt savers, the Central Bank said in its ‘Policy Agenda for 2025 and Beyond’, which was launched on Wednesday (08).

However, unlike during the high inflation episode, real returns on deposits have been positive, with inflation successfully being reined into low levels, CBSL said. Interest rates have their cycles, and the Central Bank will manoeuvre interest rates to ensure that inflation is kept low and stable with a view to promoting overall public welfare, the Bank said.

“Amidst these developments, to ensure that domestic savings are promoted in a low interest rate environment, the financial industry is encouraged to introduce innovative solutions and products to promote savings in the context of the rapidly ageing population, while also embedding elements of liquidity and safety to compensate for interest rate volatilities during business cycles. Moreover, the culture of saving at an earlier stage of life should be nurtured, which will not only promote long-term savings but will also ensure greater financial security for a better life after retirement,” the policy statement said.

The Central Bank follows a forward-looking, data-driven approach to monetary policy formulation.

“Domestic money market liquidity is likely to increase gradually in 2025 with the expected buildup of foreign reserves, and the Central Bank will stand ready to manage liquidity, through appropriate monetary operations. Meanwhile, the Central Bank will explore ways to gradually phase out its holding of restructured bonds, a legacy of the Central Bank’s financial support to the Government during the crisis,” CBSL said.

The CBSL said: “The near completion of the Government’s external debt restructuring, coupled with the significant progress made under the IMF-EFF programmer, has created a solid foundation for boosting investor confidence and ensuring the stability of the external sector. In this regard, the Central Bank will closely observe the developments and risks on the external front to advocate appropriate policies promptly.

“Sri Lanka has been able to record a current account surplus continuously for two years, in 2023 and 2024. However, as economic activity picks up, the external current account is likely to record a deficit in 2025. Sri Lanka needs to maintain the external current account at sustainable levels over the medium term. A gradual recovery in import expenditure is expected, particularly in the context of the planned relaxation of vehicle import restrictions in 2025 by the Government. Furthermore, the external current account will be supported by inflows from the services trade and workers’ remittances, which together are expected to reach historically high levels.

“The journey towards ensuring long-term stability in the external sector will be essentially built upon the ongoing IMF-EFF programme to ensure the implementation of reforms and promote overall macroeconomic stability. The Central Bank will continue to strive towards the key commitment of rebuilding external buffers under the programme by purchasing forex from the foreign exchange market. Such buildup of external buffers needs to be facilitated by sufficient foreign exchange inflows to the country by way of enhanced earnings from merchandise and services exports, workers’ remittances, and foreign direct investment. Further, with the objective of expanding reserve management activities, the Central Bank intends to capitalize market opportunities through various diversification strategies across the markets, such as establishing a new investment tranche with advanced portfolio management strategies. Due attention will be given to strengthening risk mitigating aspects to ensure the safety of invested foreign reserves.”