February 22, Colombo (LNW): The Central Bank announced its strategic shift towards focusing on medium-term inflation, deeming it more relevant for decision-making processes.
This adjustment aims to address the lag in transmission of policy decisions to near-term inflation outcomes.
In a technical discussion on the Monetary Policy report, a senior Central Bank official explained that this shift intends to provide more insightful guidance to markets and stakeholders, fostering better policy coordination and expectation management.
The Central Bank typically experiences a transmission period of six to 12 months, extending to 18 months in specific cases, with an inflation outlook spanning eight quarters ahead.
Despite an anticipated uptick in inflation for the current year due to one-off impacts like Value Added Tax changes, officials foresee stabilisation towards the year-end and early next year.
Confidence remains in the economy’s ability to return inflation to the government’s 5 per cent target, despite short-term deviations caused by recent tax adjustments and supply disruptions.
However, the latest Monetary Policy Report warns of near-term inflation risks skewed to the upside due to supply-side factors, while medium-term projections are balanced.
