Central Bank of Sri Lanka raises Overnight Policy Rate by 100 bps to 8.75%

The Central Bank of Sri Lanka raised the Overnight Policy Rate by 100 bps to 8.75%, judging that tighter policy was needed as inflation moved above target, demand conditions strengthened and external sector pressures intensified amid domestic and global uncertainty. The move followed holds at 7.75% in January and March 2026. The central bank said April 2026 headline inflation rose to 5.4% year on year, largely due to sharp domestic energy price adjustments driven by high global oil prices, and expects inflation to remain above the 5% target in the period ahead before easing and stabilising around it, while continued credit expansion, credit-driven imports and leading indicators pointed to firmer economic activity. On the external side, the external current account surplus remained modest in the first quarter of 2026 as a wider merchandise trade deficit, led by fuel imports and slower tourism earnings, offset resilient workers’ remittances, while Gross Official Reserves stood at USD 6.8 billion at end-April 2026 and the Sri Lanka rupee came under notable depreciation pressure in recent weeks before conditions eased somewhat. The Board cited heightened Middle East tensions as a key driver of elevated global commodity prices, especially petroleum, and said it will continue to assess incoming data and stand ready to act to keep inflation around target; the next regular monetary policy statement is due on 22 July 2026.