The Central Bank of Sri Lanka's Monetary Policy Report for February 2024 paints a cautiously optimistic picture, highlighting progress towards macroeconomic stability and gradual economic recovery.

It adds that although inflation may deviate from the target in the near term, mainly due to the recent tax amendments and supply side disruptions, such impact is likely to be short-lived, as it is projected to stabilise around the targeted level of 5 per cent (year-on-year) over the medium term. 

After peaking in 2022, inflation dropped to single digits in 2023, reaching a low of 1.3% in September. While it rose to 4.0% by year-end, this is attributed to temporary factors and isn't expected to derail long-term stability.

The Central Bank of Sri Lanka's Monetary Policy Report for February 2024 went on to note that annual economic growth is expected to turn positive in 2024 and gradually reach its potential over the medium term.

It added that the economy started expanding again in Q3-2023 after six quarters of contraction. This is due to improved investor confidence and the government's implementation of long-term economic policies.