Inflation Falls to 2% as IMF Reform Programme Delivers Measurable Results for Sri Lanka

Sri Lanka's consumer price inflation settled at approximately 2% in late 2025 and early 2026, one of the sharpest disinflation outcomes in the Asia-Pacific region in recent years. At the 2022 peak, annual inflation had exceeded 70%, eroding household savings and destabilising the financial system.

The turnaround reflects tight monetary policy through 2023-2024, the normalisation of global commodity prices, energy subsidy reductions, and improved foreign exchange availability following successful external debt restructuring. The IMF's Extended Fund Facility, approved in March 2023 at approximately US$3 billion, has anchored the reform programme. The fifth programme review, completed in late 2025, confirmed Sri Lanka met or exceeded most fiscal targets. The IMF also approved emergency financing after Cyclone Ditwah struck in November 2025. With reserves rebuilt and inflation subdued, the Central Bank signalled a cautious easing bias for 2026, though renewed fuel cost pressures from the Middle East conflict may complicate that path.