- Decision
- Maintain
- Rate change
- 0 bps
- overnight policy rate
- 7.75%
The Central Bank of Sri Lanka left the Overnight Policy Rate unchanged at 7.75% in its January 2026 monetary policy review, saying the current stance would help steer inflation toward the 5% target while weighing domestic developments and global uncertainties. Inflation measured by the Colombo Consumer Price Index held at 2.1% in December 2025, although food prices rose from November owing to Cyclone Ditwah-related supply disruptions and festive-season demand, and the central bank expects inflation to accelerate gradually toward 5% by the second half of 2026 as core inflation and demand strengthen. The economy expanded 5.0% in the first nine months of 2025 and, despite a late-2025 slowdown after the cyclone, early indicators pointed to resilience, with private-sector credit from commercial banks and other financial institutions continuing to expand strongly amid improving activity, higher vehicle imports and expected post-cyclone rebuilding. On the external side, the current account is estimated to have posted a sizeable surplus in 2025 despite a wider trade deficit, gross official reserves rose to USD 6.8 bn at end-2025, and the Sri Lanka rupee depreciated 5.6% against the USD in 2025 before remaining broadly stable so far in 2026. The Central Bank of Sri Lanka said it remains prepared to take appropriate policy measures to keep inflation stabilised around target while supporting the economy to reach its potential.
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.