- Decision
- Maintain
- Rate change
- 0 bps
- overnight policy rate
- 8.75%
The Monetary Policy Board of the Central Bank of Sri Lanka held the Overnight Policy Rate (OPR) at 8.75% in its September review, judging that the effects of proactive tightening in May and other measures had largely materialised while noting inflation and geopolitical and climate-related risks. The OPR had been held at 7.75% from November through March before a 100-basis-point increase to the current level in May and another hold in July. Headline inflation rose to 8.0% year on year in August and is projected to remain in high single digits through the first quarter of 2027 before easing toward the 5% target, while medium-term expectations remain broadly anchored. Real growth reached 4.7% year on year in the first half, and private-sector credit growth is gradually moderating but is expected to remain sufficient to support activity. The current account returned to surplus in August after four consecutive monthly deficits, while gross official reserves rose to USD 6.9 billion on net foreign-exchange purchases by the central bank. The outlook remains exposed to evolving Middle East tensions and potential El Niño conditions. The central bank said it will remain data-dependent and stands ready to act if inflationary pressures intensify or expectations show signs of de-anchoring.
Rate evolution
The Central Bank of Sri Lanka held the Overnight Policy Rate (OPR) at 7.75% in January and March 2026 before raising it by 100 basis points to 8.75% in May and keeping it there in July and September, leaving it 100 basis points higher over the period. The initial hold reflected a view that the prevailing 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 low inflation 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 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 the target and that the May tightening, together with other policy measures, should gradually moderate credit growth and demand pressures, while noting that external pressure had eased somewhat despite a current account deficit since April, strong workers’ remittances, gross official reserves of USD 6.45 bn at end-June and some stabilisation in the rupee. In September 2026, it again held the OPR at 8.75% after noting that the effects of the May tightening and other measures had largely materialised, private-sector credit growth was gradually moderating while remaining sufficient to support activity, first-half real growth was 4.7% year on year and the external sector remained resilient, even as headline inflation rose to 8.0% in August on the pass-through of the energy shock and was projected to remain in high single digits through the first quarter of 2027 before easing towards the 5% target, with medium-term expectations broadly anchored and the Board flagging uncertainty from Middle East tensions and potential El Niño conditions.