I am also grateful to Senior Deputy Governor Dr. Nandalal Weerasinghe, and the Deputy Governors, Mr. K D Ranasinghe, Mr. S R Attygalle and Mr. H A Karunaratne. Their support and contribution in terms of highly professional advice and excellent technical expertise helped me to effectively discharge the duties as the CEO of this iconic institution. I would also like to acknowledge the extraordinary service rendered by former Deputy Governor, Mr. C J P Siriwardana, who retired from the Bank service last year. I am also thankful to the members of the Monetary Policy Consultative Committee, Financial System Stability Consultative Committee as well as the Monetary Board Advisory Audit Committee for their valuable views and suggestions, which helped us immensely in better calibrating our policies and operations. 42  Last and most importantly, I would also like to express my sincere gratitude to the Assistant Governors, Senior Heads and Heads of Departments, particularly the Director of Economic Research and the Staff of the Economic Research Department for their effort in producing this policy document. It is my pleasure to acknowledge my colleagues in the Governor’s Secretariat who support me on a day-to-day basis. I would be lost without their assistance. In my view, the greatest asset of the Central Bank is its staff without whom we cannot deliver our tasks and achieve our objectives for the nation. I thank all Staff of the Central Bank who serve the nation with professionalism, technical excellence and integrity and more importantly with vigour and enthusiasm even amidst turbulences.

The sustained high deficits of rupee liquidity in the domestic money market compelled the Central Bank to reduce the Statutory Reserve Ratio (SRR) applicable on all rupee deposits of commercial banks in November 2018, while increasing policy interest rates to neutralise the impact on interest rates due to the permanent liquidity injection arising from the reduction in SRR. We followed this cautious approach with the broad aim of stabilising inflation at 5  mid single digit levels and anchoring inflation expectations to enable the economy to reach its potential in the medium term. In the external sector, the growth in export earnings was outpaced by the expansion in import expenditure, although earnings from tourism, workers’ remittances, foreign direct investment (FDI) and debt related inflows to the government helped cushion the balance of payments (BOP) to some extent. The BOP experienced significant pressure on account of foreign exchange outflows caused by tightening global financial conditions and the strengthening of US dollar in view of monetary policy normalisation, particularly in the United States, as well as the widened trade deficit. Similar to the pressure that was observed in other emerging market economies, these developments resulted in a sharp depreciation of the Sri Lankan rupee particularly during the second half of the year. The Central Bank intervened in the domestic foreign exchange market at times to prevent disorderly adjustments in the exchange rate, while allowing demand and supply forces of the forex market to determine its level and direction.