IMF Backs Sri Lanka’s Monetary Policy Following Recent Rate Hike 📈

The International Monetary Fund (IMF) has confirmed that Sri Lanka's monetary policy stance remains "broadly appropriate" despite the Central Bank of Sri Lanka's (CBSL) recent 100-basis point policy rate hike, according to Mission Chief Evan Papageorgiou. • Macroeconomic Recovery: Recovery remains on track with strong potential to meet the IMF's 3% growth projection for the country. Inflation is expected to stay aligned with the CBSL 5% target for 2026 and the medium term. • Program Progress: The update follows the IMF's approval of the combined Fifth and Sixth Reviews under the Extended Fund Facility (EFF), unlocking approximately US$ 700 Mn in financing. • Monetary Reforms: A critical achievement includes ending the monetary financing of the fiscal deficit, meaning the CBSL is no longer printing money for government expenditure. Inflation has successfully dropped to low single digits from peak crisis levels of 60%-70% in 2022. • Exchange Rate & Reserves: The IMF defended Sri Lanka's flexible exchange rate regime, stating the rupee acts as a vital "shock absorber" against external disruptions like geopolitical conflict and rising oil prices. While foreign reserves continue to grow, the pace of accumulation has moderated due to selective CBSL interventions to smooth excessive volatility.