The Central Bank of Sri Lanka has a legal mandate to keep inflation around 5%, within a band of 3% to 7%. That target has now been renewed for another three years.

Inflation measures how fast the prices of everyday goods and services rise. A steady, predictable rate helps families plan their budgets, protects the value of savings and gives businesses confidence to invest.

When inflation climbs above the band — as it did in August, when it reached 8% because of higher energy costs — the Central Bank can respond by keeping interest rates higher for longer, which slows borrowing and spending.

For households, that can mean higher loan repayments in the short term. The trade-off is that keeping inflation under control protects purchasing power over time, especially for people on fixed incomes.