The Hon. (Dr.) Anil Jayantha - Minister of Labour and Deputy Minister of Economic Development

¶ 01 Hon. Speaker, on behalf of the Minister of Finance, Planning and Economic Development:

¶ 02 1. Recent inflation undershot the target primarily due to pronounced supply-side deflation. Administered price reductions, especially in electricity and fuel, exerted strong downward pressure on inflation. Such supply-side deflation is beyond monetary policy scope. Considering macroeconomic developments, CBSL adopted an accommodative stance, reducing policy rates by 8 percentage points from June 2023 to July 2025. After exceptionally high inflation in 2022-2023, a brief undershoot provides relief to households and businesses.

¶ 03 2. No. With effect from September 2023, the Act grants greater independence. CBSL is not subject to fiscal dominance or external constraints.

¶ 04 3. The Act itself is a major structural reform. Section 8 establishes a Governing Board for non-monetary policy matters; Section 11 establishes the Monetary Policy Board (MPB) to operate a flexible exchange rate within a flexible inflation targeting (FIT) framework to ensure domestic price stability.

¶ 05 4. Under FIT, CBSL has proactively taken appropriate and prudent monetary measures while maintaining a flexible exchange rate, as stipulated by the Act.

¶ 06 5. The MPB independently reviews inflation performance under the IMF EFF programme. These assessments are monitored by IMF staff, reviewed by the IMF Executive Board, and are publicly available on the IMF website.

¶ 07 6. Not applicable, as CBSL does not attribute the inflation deviation to fiscal activities.

¶ 08 7. The Coordination Council under the Act ensures coordination on fiscal, monetary and financial stability policies. From 2023 to date, seven meetings have been held, three under the present administration.

¶ 09 8. Monetary financing is prohibited by the Act; hence no fiscal influence over CBSL activities.

¶ 10 9. The Monetary Policy Framework Agreement (MPFA) between the Minister of Finance and the Governor was signed on 03 October 2023, setting a 5% inflation target with a ±2% band (3%-7%) for three years to 2026. Reporting obligations under the Act ensure transparency and accountability.

¶ 11 10. Accountability mechanisms: Section 26 mandates the MPB to report to the Minister and lay a report before Parliament when inflation deviates from target for two consecutive quarters, explaining causes, corrective measures and timelines; such reports are public. Section 80 requires public communication on monetary policy at least every six months. The Governor, Governing Board and MPB Members, and every Deputy Governor must appear before Parliament or its Committees every four months upon request. The Governor must table the Annual Report within four months of the financial year-end. Biannual Monetary Policy Reports are published in February and August, covering inflation, projections, risks and policy actions.

¶ 12 Thank you.