ECONOMYNEXT – Sri Lanka’s shopper costs fell 0.3 p.c within the 12-months to July 2025, with costs dropping 0.2 p.c in July, knowledge from the state statistics workplace confirmed.
Sri Lanka’s central financial institution has created solely 2.9 p.c inflation within the 34 months since September 2022, when deflationary coverage began displaying up within the stability of funds.
However the central financial institution printed cash within the final quarter of 2024 as a pickup in credit score pushed up interbank charges.
Extra liquidity constructed up within the first quarter from greenback purchases which the central financial institution’s founder Governor John Exter, who had superior information of note-issue banking, as soon as referred to as ‘monetizing the stability of funds’.
In June meals costs had been rose 0.9 p.c within the 33 months from September 2022, however in July 2025 meals worth had been down 1.5 p.c over 34 months.
Sri Lanka’s central financial institution has additionally been helped by higher financial coverage from the Fed.
Earlier than the invention of open market operations and ‘full employment insurance policies’ of the Sixties nominal rates of interest and actual rates of interest had been the identical besides in conflict time, when international locations printed cash out of desperation, understanding full nicely the results.
Analysts have warned that if charges are minimize too low, too quickly, the central financial institution won’t be able to gather sufficient reserve to repay debt and to construct reserve extra liquidity needs to be mopped up by means of deflationary operations.
If makes an attempt are made to gather {dollars} in extra of deflationary operations (sterilizing inflows), the rupee will fall.
Central financial institution has broadly operated deflationary coverage besides within the final quarter of 2024 and missed it 5 p.c inflation goal, serving to keep away from social unrest and offering a powerful basis for development to get better and to retore actual salaries and shopper spending.
There have been name for the central financial institution to finish is quest for top inflation.
Falling costs of some items had additional boosted shopper spending and development. (Colombo/July31/2025)
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