COLOMBO, 02 October 2026 – Sri Lanka has officially set its inflation target at 5% for the upcoming three years, a significant step announced today following the signing of a new Monetary Policy Framework Agreement (MPFA) between the government and the Central Bank of Sri Lanka (CBSL).
The landmark agreement was signed on 01 October 2026 by Hon. Anura Kumara Dissanayake, the Minister of Finance, Planning and Economic Development and President of Sri Lanka, and Dr. P Nandalal Weerasinghe, the Governor of the Central Bank of Sri Lanka. This crucial document, in terms of Section 26 of the Central Bank of Sri Lanka Act, No. 16 of 2023 (CBA), was subsequently published in Government Gazette Extraordinary No. 2508/28 on the same day.
Key Features of the New Monetary Policy Framework Agreement
The newly ratified MPFA outlines clear parameters for maintaining domestic price stability, which is the primary objective of the Central Bank. Its key features include:
- Inflation Target: The Central Bank is mandated to maintain the quarterly headline inflation rate at 5%. This target underscores the nation’s commitment to fostering a stable economic environment.
- Accountability Margin: To account for unforeseen economic fluctuations, an accountability margin of ±2 percentage points has been established around the target.
- Measure of Inflation: Quarterly headline inflation will be calculated as the simple average of the year-on-year percentage changes in the monthly Colombo Consumer Price Index (CCPI). This index is published by the Department of Census and Statistics for the three months of the corresponding calendar quarter.
Scheduled Review and Comprehensive Assessment
In accordance with Section 26(4) of the CBA, the inflation target and related parameters undergo a review once every three years, or at shorter intervals if exceptional circumstances necessitate. The year 2026 marked the scheduled review since the initial MPFA was signed in October 2023, reflecting a structured and transparent approach to monetary policy formulation.
As part of this comprehensive review, the Central Bank undertook an exhaustive technical assessment. This detailed analysis considered various critical factors, including Sri Lanka’s unique economic structure, historical and empirical evidence, contemporary monetary policy considerations, the credibility of the overall framework, diverse stakeholder views, and established international experience and practices.
Based on the robust findings of this review, the Central Bank presented its proposals to the Ministry of Finance, Planning and Economic Development. After meticulous consideration, the Ministry accepted the recommendations, paving the way for the signing of this new agreement.
Commitment to Price Stability
The Central Bank of Sri Lanka has reiterated its unwavering commitment to achieving and maintaining the newly set inflation target. This will be pursued through forward-looking and data-driven policy decisions, ensuring that the primary objective of achieving and maintaining domestic price stability remains at the forefront of its mandate, crucial for the nation’s economic health and investor confidence.
The Government Gazette containing the full details of the Monetary Policy Framework Agreement is accessible to the public for further information.
Source: Read original document
Further details on the Monetary Policy Framework Agreement can be found on the CBSL website: https://www.cbsl.gov.lk/en/monetary-policy/monetary-policy-framework-agreement
