By The Pulseline News Desk
Former Finance Minister Ravi Karunanayake has called for an early review of Sri Lanka’s monetary policy framework, arguing that the country should aim for a lower inflation target as it seeks to consolidate economic stability after its worst financial crisis in decades.
In a letter to President Anura Kumara Dissanayake (Akd), Karunanayake has urged the government to begin preparations for the statutory review of the Monetary Policy Framework Agreement (MPFA), scheduled for October 2026. The agreement, signed in 2023 between then Finance Minister Ranil Wickremesinghe and Central Bank of Sri Lanka (CBSL) Governor P. Nandalal Weerasinghe, established a medium-term inflation target of 5 percent.
Karunanayake contends that the upcoming review presents an opportunity to reassess whether that target remains suitable for an economy still recovering from sovereign default, sharp currency depreciation and a dramatic erosion of household purchasing power.
His proposal is to lower the inflation target to between 2 and 3 percent, bringing Sri Lanka closer to the inflation objectives pursued by several advanced and emerging economies. He argues that lower and more stable inflation would help strengthen confidence in the rupee, protect savings and support long-term economic growth.
The intervention comes amid a broader debate over the role of monetary policy in post-crisis Sri Lanka. While inflation targeting has become a central pillar of the country’s new CBSL framework, Karunanayake argues that Sri Lanka’s inflation has historically been driven less by excessive domestic demand and more by external and structural factors, including exchange-rate volatility, fuel imports, food supply disruptions and utility price adjustments.
As a result, he warns that relying primarily on interest rate policy could prove insufficient in addressing inflationary pressures while simultaneously supporting economic expansion.
The former minister also advocates a wider policy focus that extends beyond inflation control. His recommendations include prioritising foreign exchange reserve accumulation, encouraging domestic savings, promoting investment and capital formation, strengthening export competitiveness and safeguarding the long-term value of the rupee.
The proposal highlights a growing policy discussion over how Sri Lanka should balance price stability with growth objectives as it emerges from economic crisis and navigates a still-fragile recovery.
Karunanayake has also called for stronger parliamentary oversight of monetary policy, including regular reporting on inflation outcomes, reserve accumulation, exchange-rate stability and the impact of policy decisions on economic growth.
While the formal review of the MPFA is still more than a year away, the debate over what should replace, or refine, the current framework appears to have already begun.
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