“Reduce Inflation to 2–3%” – Ravi presents special economic proposal

Former Finance Minister and Member of Parliament Ravi Karunanayake has written to President Anura Kumara Dissanayake, who is also the Minister of Finance, Economic Stabilisation and National Policies, requesting that Sri Lanka’s medium-term inflation target be reduced from the current 5% to a range of 2%–3%, ahead of the legally required review of the Monetary Policy Framework Agreement (MPFA scheduled for October 2026).

The Monetary Policy Framework Agreement, signed on 5 October 2023 by then President Ranil Wickremesinghe and Central Bank Governor Dr. P. Nandalal Weerasinghe, is required to be reviewed every three years under the Central Bank of Sri Lanka Act No. 16 of 2023. The next scheduled review falls in October 2026.

Karunanayake argues that maintaining a 5% inflation target over the long term continuously erodes the real purchasing power of the public.

Citing major global economies such as India, Indonesia, China, Australia, Malaysia, as well as institutions like the European Central Bank (ECB) and the US Federal Reserve, which maintain inflation targets around 2%, he has put forward this proposal as a comparative benchmark.

Focusing on the upcoming October review, Karunanayake has presented five key proposals to the President.

Accordingly, the main recommendation is to immediately reduce the medium-term inflation target to 2%–3% and maintain narrow variance bands in order to strengthen policy credibility and accountability.

He further proposes that foreign reserve accumulation, promotion of domestic savings, capital formation, productive investment, and export competitiveness should be made explicit and central components of monetary policy.

He also calls for enhanced transparency and comprehensive parliamentary reporting on the relationship between inflation, reserve growth, exchange rate stability, and overall economic growth.

Additionally, the proposal emphasizes the need for a stable framework that takes into account Sri Lanka’s historical balance of payments risks, while strengthening long-term financial stability and domestic resource mobilisation.