Central Bank of Sri Lanka Holds Overnight Policy Rate at 7.75%

The Central Bank of Sri Lanka held the Overnight Policy Rate at 7.75% in its March 2026 review, judging that the current low inflation rate provides room to absorb the effects of a significant domestic energy price increase driven by higher global energy prices and trade disruptions amid the ongoing Middle East conflict, while inflation is now expected to reach the 5% target in Q2-2026 earlier than previously anticipated and remain around that level thereafter. The hold followed another decision in January 2026 to keep the OPR at 7.75%. Headline inflation was 1.6% year on year in February 2026 against the 5% target, while the economy grew 5.0% in 2025 and leading indicators pointed to a strong post-Cyclone recovery in early 2026, though the central bank said a prolonged conflict could weigh on activity. The external sector remained robust in the first two months of 2026, gross official reserves rose to USD 7.3 bn at end-February, and the Sri Lanka rupee was relatively stable in early 2026 although some depreciation pressures emerged after the conflict began. The central bank said heightened geopolitical tensions have lifted energy prices and disrupted trade, creating elevated uncertainty for both global and domestic conditions. It said it remains prepared to take appropriate policy measures to keep inflation around target while supporting the economy to reach its potential, with the next regular monetary policy statement due on 26 May 2026.