Sri Lanka Locks In 5% Inflation Target for Next Three Years
COLOMBO, October 3, 2026 — Sri Lanka has formally locked in a 5% inflation target for the next three years, reinforcing price stability as the central anchor for monetary policy and providing businesses and investors with a clearer medium-term economic outlook.
President and Minister of Finance, Planning and Economic Development Anura Kumara Dissanayake and Central Bank Governor Dr. P. Nandalal Weerasinghe signed the new Monetary Policy Framework Agreement (MPFA) on October 1, 2026, under the Central Bank of Sri Lanka Act. The agreement was subsequently gazetted as Government Gazette Extraordinary No. 2508/28.
Under the new framework, the Central Bank will seek to maintain quarterly headline inflation at 5%, with an accountability margin of plus or minus two percentage points. This means the framework allows inflation to fluctuate within a range of 3% to 7% before triggering the accountability mechanism under the law.
For businesses, maintaining inflation around the 5% target is critical to improving the predictability of operating costs, consumer demand, investment decisions and financing conditions. A stable inflation environment can also help businesses make longer-term investment and pricing decisions with greater confidence.
The inflation measure used under the framework is the quarterly headline inflation rate, calculated as the simple average of the year-on-year changes in the Colombo Consumer Price Index (CCPI) for the three months of each calendar quarter.
The agreement follows the scheduled three-year review of Sri Lanka’s inflation-targeting framework, which was initially established in October 2023. Under the Central Bank Act, the inflation target and related parameters are reviewed every three years, or earlier if exceptional circumstances require.
The Central Bank said its review included a comprehensive assessment of Sri Lanka’s economic structure, historical and empirical evidence, monetary policy considerations, the credibility of the existing framework, stakeholder views and international practices.
Following the assessment, the Central Bank submitted its recommendation to the Ministry of Finance, which accepted the proposed framework.
The renewed commitment comes at a critical point for Sri Lanka’s economy. Headline inflation stood at 8.0% in September 2026, while the Central Bank has said inflation is expected to remain elevated in the near term before easing towards the 5% target. The Bank has maintained its Overnight Policy Rate at 8.75% while continuing to monitor inflationary pressures and economic conditions.
The Central Bank said it will continue to make forward-looking, data-driven monetary policy decisions to achieve the inflation target while pursuing its primary objective of maintaining domestic price stability.
For Sri Lanka’s corporate sector and financial markets, the renewed framework provides an important policy signal: price stability remains the key monetary policy priority, with the 5% target set to guide interest-rate and liquidity decisions over the next three years.
