- Decision
- Lower
- Rate change
- 25 bps
- overnight policy rate
- 7.75%
The Monetary Policy Board of the Central Bank of Sri Lanka cut the Overnight Policy Rate (OPR) by 25 bp to 7.75 % on 22 May 2025, aiming to foster a gradual return of inflation—currently easing out of deflation and projected to turn positive in early Q3 before aligning with the 5 % target—while safeguarding growth amid heightened global uncertainties. After keeping the OPR unchanged at 8.00 % in January and March, this marks the first reduction of the year. The Standing Deposit and Lending Facility Rates move in tandem to 7.25 % and 8.25 %, and the Board expects the latest easing to spur further declines in lending rates that have already stabilised at lower levels. Domestic indicators show sustained economic momentum and strong private-sector credit expansion, with core inflation and inflation expectations beginning to firm. Tourism receipts, workers’ remittances and the central bank’s net FX purchases have bolstered official reserves despite a wider trade deficit and some rupee depreciation against the USD. The Board will continue to assess incoming data and stands ready to act to keep inflation near 5 % while supporting potential growth, with the next policy review slated for 23 July 2025.
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.