Business

Central Bank sets its macroeconomic projections in a firm direction

Published

2 years ago

2023/08/9

Sahan Weerasooriya

But warns of uncertainty surrounding forecasts of given variables

by Sanath Nanayakkare

After the Central Bank of Sri Lanka (CBSL) recently set a more inclusive and predictable Monetary Policy under the new CBSL Act, the business community appears to be taking their cue from the Bank’s medium term economic projections as was evident by the increased buying interest at the Colombo Stock Exchange when the market opened trading for the week on August 7.

On August 3, Dr. P. K. G. Harischandra, Director of Economic Research at the Central Bank of Sri Lanka said that CBSL’s latest Monetary Policy Report would give guidance to financial markets and other stakeholders as to how inflation and price stability would behave in the medium term (next 2-3 years), and therefore, they could assess future trends in the economy while evaluating the matrix of downside risks and upside risks in their investment and business decisions.

“Anchoring inflation expectations is a key element in the Monetary Policy framework. We will be focusing on the need to stabilize inflation expectations in businesses and households alike,” he said on 3rd August addressing journalists at a technical discussion on the Monetary Policy Report.

Illustrating Inflation fan charts for the medium term, Dr. Harischandra said,”CBSL arrives at macroeconomic projections including that of inflation, using a semi-structural macroeconomic model. These projections are usually updated on a quarterly frequency along with the release of GDP data. Projections are arrived at using released data, projections of major global indicators, near-term forecasts of selected variables and judgments,” he said.

However, he pointed out that forecasts are uncertain by nature, which is represented by the confidence intervals, and this uncertainty needs to be taken into consideration when such forecasts are used for various purposes.

“As per latest projections, inflation is expected to reach single digit levels in Q3 2023, and will stabilize at the desired levels over the medium term. So, when inflation stabilizes over the medium term, interest rates also will move in line with it. A major element here is the risk factors on the forecasts. Sometimes the actual figures could differ from the baseline forecasts. We explain such risks in the Monetary Policy report, he said.

Dr. Harischandra noted that CBSL would build up credibility of the projections process through increased communication with the public ensuring a high level of transparency.

“Going forward, we will be publishing a forecast and when we receive actual data in the coming weeks and months, we will be able to see the difference between our forecasts and actual data. Yes, there may be some difference as our projections may not be 100% accurate. We will then explain why any such deviations from the forecasts have happened. And then we can refer to what adjustments are needed on the medium term forecasts for the benefit of the public and businesses. Through this process, we are committed to increasing the transparency and credibility of the Monetary Policy and our projections. Because when we commit ourselves to a medium term target, we have an accountability to achieve it. That is a requirement of the Monetary Policy.”

Speaking further Dr. Harischandra said, “In addition to maintaining price stability, there will be other policy coordination, and we will be creating a platform for discussions in order to support decision making in broader terms”

“In June 2023, Colombo Consumer Price Index (CCPI) was 12%. In July it came down to 6.3%. The core inflation declined to 6.1%. Within this month, we expect that it will come into the targeted range. When headline inflation came down to 6.3%, food inflation became a negative 1.4%. Non-food has gone up by 19.5%, but transportation is a negative 9.3%. These reasons, prudent policies on the fiscal front and the inflation base effect in 2022 mainly brought inflation down. People ask if inflation has decelerated why prices aren’t coming down. We say at every forum that a fall in inflation is not necessarily about a fall in prices of all commodities across the board. Prices of some consumer items have declined notably giving relief to the consumers and prices of some other items have slowed the rate of increase in prices. Overall, there are no price shocks now. Journalists also have a task in communicating this properly to the public because it is a huge incomprehension that a fall in inflation is a fall in prices of everything.”

“Each economy needs some inflation. If there is negative inflation nobody will invest and produce because if prices keep coming down there will be losses. So, no country targets negative inflation. But as we came from a very high inflation to lower inflation, there was some negative inflation. A good rule of thumb for any country is not to let the price of the overall basket to get negative inflation because the consequences of that could ripple through the economy.”

Dr. Harishchandra told The Island Financial Review that the exchange rate of the US dollar to LKR won’t see much of an adverse effect when the government begins to make foreign debt repayments because the Domestic Debt Optimization programme is designed to withstand such risk.

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Business

India pledges $450 million for cyclone recovery while Sri Lanka’s top financial watchdog seat remains vacant

Published

8 hours ago

2025/12/25

Sahan Weerasooriya

Indian External Affairs Minister Dr. S. Jaishankar wraps up his official visit to Sri Lanka on 23rd December,2025

India extended a powerful hand of friendship on December 23, pledging $450 million to help Sri Lanka rebuild from Cyclone Ditwah. The aid, announced by Indian External Affairs Minister Dr. S. Jaishankar, is a lifeline for critical infrastructure, housing and agriculture.

Yet, even as this commitment was made, a crucial question hung in the air: Who will watch the money?

Sri Lanka has operated without a permanent Auditor General for eight months, an independent observer told The Island Financial Review.

“Since April 2025, the constitutional body meant to be the independent guardian of public spending has been led by temporary appointees. This isn’t just bureaucratic delay; it is a self-inflicted wound on democratic accountability,” he said.

He explained that the Auditor General, mandated by the Constitutional Council, is the linchpin that ensures public funds are used with integrity.

“In a nation still recovering from a devastating economic crisis, the AG’s role is the bedrock of trust. This office audits everything from social safety nets to state-owned enterprise losses and, critically, emergency expenditures,” he noted.

“The delay undermines public trust and robust oversight at a time when these are urgently needed. With no permanent AG, the oversight of billions in cyclone relief funds – including India’s generous package – can be fundamentally weakened.”

India’s decision to provide funds despite this oversight vacuum is a profound act of goodwill, the observer said.

“But the question now shifts squarely to the Sri Lankan government: How will it honour that faith? The $450 million is a mirror held up to Sri Lanka’s governance,” he stated.

He urged the Constitutional Council to act decisively to appoint a competent, independent Auditor General through a transparent process.

“This is the cornerstone of ensuring that disaster recovery builds not just physical infrastructure, but also public trust,” he concluded.

By Sanath Nanayakkare

Business

Robust overseas demand for Sri Lanka’s premier tea

Published

8 hours ago

2025/12/25

Sahan Weerasooriya

Categories such as Instant Tea and Tea Bags have recorded encouraging gains in both volume and foreign exchange earnings

Ceylon Tea exports have demonstrated notable volume growth for the first eleven months of 2025, reaching a cumulative total of 239.57 million kilograms. This figure represents a solid increase of 16.35 million kilograms compared to the corresponding period in 2024, signalling robust overseas demand for Sri Lanka’s premier commodity.

The broader trend, however, reveals a dynamic reshuffling among the nation’s key export markets, painting a picture of both promising diversification and shifting global trade currents.

A striking development is the continued ascendancy of Iraq as the single largest importer of Ceylon Tea. During the January to November period, Iraq purchased 36.77 million kilograms, marking a substantial 21% year-on-year increase and firmly securing its top position. In contrast, the traditional powerhouse market of Russia, while holding second place with 19.94 million kilograms, recorded a 13% decline in volume. Other markets show significant movement; Türkiye follows closely in third place, while Libya has emerged as a high-growth destination, witnessing a remarkable 115% surge in imports to claim fourth position. This evolving landscape underscores a strategic shift, where gains in emerging and regional markets are actively counterbalancing softer demand in some established ones.

Categories such as Instant Tea and Tea Bags have recorded encouraging gains in both volume and foreign exchange earnings, indicating a positive consumer trend towards convenience and value-added products. This gradual move up the value chain is crucial for enhancing the sector’s resilience and profitability.

Business

Sri Lanka to host South Asia’s inaugural Reggae festival in Bentota

Published

8 hours ago

2025/12/25

Sahan Weerasooriya

A tribute to Bob Marley" will be held from 27 to 29 March 2026 on the beaches of Bentota

Sri Lanka is poised to enter the regional cultural spotlight as the host of South Asia’s first-ever reggae music festival. “ONE LOVE 2026 – A Tribute to Bob Marley” will be held from 27 to 29 March 2026 on the beaches of Bentota, marking an unprecedented celebration of global reggae music within the Asia-Pacific region.

The landmark announcement was made at a press conference hosted by the ultra-luxury property, NUWA- City of Dreams in Colombo.

The festival represents a significant cultural and tourism initiative, featuring an unprecedented assembly of international reggae talent for the region. The confirmed lineup includes six globally acclaimed acts: Maxi Priest, The Wailers, Julian Marley & Ky-Mani Marley, Inner Circle and Big Mountain.

Organised by One In A Million Entertainment Ltd.—a Sri Lankan-owned firm with headquarters in Europe and Colombo – in strategic collaboration with Caribbean Entertainment, the event builds upon a proven track record of delivering major international entertainment to Sri Lanka. The festival is anticipated to attract thousands of attendees, including local enthusiasts and visitors from key markets such as India, the Maldives, and Bangladesh, as well as Western tourists seeking a tropical retreat.

Aligning with the commemoration of Bob Marley’s 81st birthday, the event carries profound cultural resonance. It also incorporates a charitable component, with a portion of proceeds dedicated to a children’s orphanage water purification project managed by the Indian Cultural Association in Sri Lanka, and to supporting the charitable activities of the Bob and Rita Marley Foundation in Jamaica.

The festival’s international delegation will be accommodated at NUWA Sri Lanka, the flagship ultra-luxury destination of Melco Resorts & Entertainment in Colombo.

Ticket Information: Daily General Admission: LKR 10,000, Daily VIP Admission: LKR 50,000, Early Bird Three-Day Festival Pass (Limited Offer):, General Admission: LKR 25,000, VIP Access: LKR 125,000 Tickets are available via the PickMe Events platform.