Ravi K urges President to review inflation target, proposes reducing it to 2–3%

Colombo, June 18 (Daily Mirror) - Former Finance Minister Ravi Karunanayake has urged President Anura Kumara Dissanayake to initiate an early review of Sri Lanka’s Monetary Policy Framework Agreement (MPFA), proposing that the country’s medium-term inflation target be reduced from the current 5% to between 2% and 3%.

In a letter addressed to the President, Karunanayake noted that the MPFA, signed in October 2023 between the then Finance Minister Ranil Wickremesinghe and Central Bank Governor Dr. P. Nandalal Weerasinghe, is due for its statutory review in October 2026 under the Central Bank of Sri Lanka Act.

He said the review presents an important opportunity to reassess whether the existing inflation target remains appropriate in the aftermath of Sri Lanka’s economic crisis, which saw sovereign default, currency depreciation and a severe erosion of household purchasing power.

Karunanayake argued that Sri Lanka’s inflation has largely been driven by supply-side and external factors such as exchange rate depreciation, imported fuel costs, food supply disruptions, utility tariff revisions and global commodity price movements, rather than excessive domestic demand.

He warned that the country risks drifting into a stagflationary environment, where weak economic growth coexists with persistent inflation, and said relying solely on interest rate adjustments would not address the structural causes of inflation.

Furthermore, the former minister proposed broadening the country’s monetary policy framework to place greater emphasis on building foreign exchange reserves, encouraging domestic savings, promoting capital formation, supporting productive investment, enhancing export competitiveness and preserving the long-term value of the Sri Lankan Rupee.

Citing inflation targets adopted by countries including India, Indonesia, Thailand, the United Kingdom, Canada and the United States, Karunanayake said lower and more stable inflation objectives have supported stronger economic growth and monetary credibility.

He also called for enhanced Central Bank reporting to Parliament on inflation performance, reserve accumulation, exchange rate stability and the relationship between monetary policy and economic growth.

Karunanayake urged the President to begin preparations for the October 2026 review well in advance and adopt a more comprehensive monetary framework aimed at safeguarding the value of the rupee, protecting household savings and preventing future balance-of-payments crises.