- Decision
- Maintain
- Rate change
- 0 bps
- overnight policy rate
- 8%
The Monetary Policy Board of the Central Bank of Sri Lanka on 26 March 2025 left the Overnight Policy Rate (OPR) unchanged at 8.00 percent, judging the existing stance adequate for guiding inflation back to the 5 percent target while sustaining the economy’s post-crisis rebound. The hold extends January’s decision to keep the OPR at 8.00 percent. Rupee liquidity remains in surplus and market rates have fallen in line with earlier easing, underpinning continued robust private-sector credit growth. Year-on-year headline inflation is still negative due to successive electricity and fuel tariff cuts but is projected to turn positive by mid-2025 and reach target by end-2025; core inflation is low and growth rebounded strongly in 2024, with leading indicators pointing to further momentum. Exports stay firm even as stronger imports widen the trade deficit, while tourism receipts, workers’ remittances, foreign inflows to government securities and the latest IMF-EFF tranche have lifted reserves amid only a marginal 2025 rupee depreciation. While assessing global trade and geopolitical risks as balanced, the Board reiterated its data-dependent, forward-looking approach and signalled readiness to adjust policy if threats to price stability or growth emerge.
Rate evolution
The Central Bank of Sri Lanka held the Overnight Policy Rate (OPR) at 7.75% through January and March 2026 before raising it by 100 basis points to 8.75% in May 2026 and keeping it there in July, leaving it 100 basis points higher over the period. The extended hold reflected a view that the current stance would steer Colombo Consumer Price Index inflation towards the 5% target while supporting growth, with inflation at 2.1% in December 2025 and 1.6% in February 2026, food prices edging higher after Cyclone Ditwah and festive demand, and the Board judging that the low inflation level provided space to accommodate higher domestic energy prices stemming from the rise in global energy prices and trade disruptions amid the Middle East conflict. Until then, the Board also pointed to 5.0% growth in 2025, a strong post-Cyclone recovery in early 2026, notable private-sector credit expansion linked to improving activity, vehicle imports and rebuilding, and a robust external sector, with stronger export earnings than imports, higher remittances and tourism earnings, gross official reserves rising to USD 7.3 bn at end-February 2026 from USD 6.8 bn at end-2025, and the rupee relatively stable in early 2026 despite some depreciation pressures after the onset of the Middle East conflict.
In May 2026, however, it tightened as heightened Middle East tensions kept global oil prices high and necessitated sharp upward adjustments to domestic energy prices, lifting April inflation to 5.4%, while demand conditions also strengthened through continued credit expansion, credit-driven imports and leading indicators of activity. In July 2026, the Central Bank of Sri Lanka left the OPR unchanged at 8.75% as renewed Middle East tensions drove a further surge in global commodity prices, particularly petroleum, and pushed headline inflation to 6.8% in June on higher domestic energy and food prices, but it said inflation expectations remained well-anchored around target and that the May tightening, together with other policy measures, should gradually moderate credit growth and demand pressures. It also noted that pressure on the external sector had eased somewhat even as uncertainty remained high, with the external current account in deficit since April because higher fuel import costs widened the merchandise trade deficit and tourism earnings slowed, while workers’ remittances remained strong, gross official reserves stood at USD 6.45 bn at end-June 2026 amid foreign debt service payments, and the rupee had stabilised somewhat in recent weeks reflecting the policy measures taken thus far.