- Decision
- Maintain
- Rate change
- 0 bps
- overnight policy rate
- 7.75%
The Monetary Policy Board of the Central Bank of Sri Lanka on 24 September 2025 left the Overnight Policy Rate unchanged at 7.75 percent, judging the prevailing stance appropriate to guide headline inflation, which turned positive in August after 11 months of deflation, gradually toward the 5 percent target by mid-2026 amid firming core pressures and anchored expectations. After a 25 bp cut in May, the rate has been held at 7.75 percent at the July and September reviews. The statement offers no new operational changes beyond keeping the OPR steady. Headline CPI is seen rising steadily as domestic demand strengthens; output expanded by 4.8 percent year-on-year in H1 2025 and leading indicators point to continued growth in Q3, while robust, broad-based private-sector credit growth benefits from the low-rate environment. On the external front, higher tourism receipts and remittances and continued net FX purchases lifted gross official reserves to USD 6.2 bn by end-August, with the Sri Lanka rupee broadly stable and recent sovereign rating upgrades noted. The board highlights generally easier global financial conditions but flags persistent geopolitical uncertainties, and reiterates its readiness to adjust policy if needed to keep inflation on track while supporting economic activity, with the next policy review due on 26 November 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.