Sri Lanka Central Bank Says ‘No Change to Policy Rate’ amidst Risks

The Bank maintained the Overnight Policy Rate at 8.75% as inflation rises to 8.0% and global uncertainties

The Central Bank of Sri Lanka has kept its Overnight Policy Rate (OPR) unchanged at 8.75%, citing the need to assess inflationary pressures, domestic economic conditions and risks arising from global developments.

The Monetary Policy Board reached the decision to keep the policy rate unchanged at its latest meeting after considering conditions in the domestic and global economies.

The Bank also assessed the effects of the monetary policy tightening introduced in May 2026, alongside other measures that have already largely taken effect.

Inflation rises amid higher energy costs

Headline inflation increased to 8.0% year-on-year in August 2026, reflecting the impact of higher energy costs across several sectors.

The Central Bank expects inflation to remain in the high single digits through the first quarter of 2027 before easing towards its 5% target.

Core inflation has also risen as higher energy prices spill over into other areas of the economy.

Despite the recent increase in prices, medium-term inflation expectations remain broadly anchored around the target, according to the Central Bank.

The Board said it would continue to monitor developments and respond if inflationary pressures intensify or expectations begin to move away from the target.

Economic activity remains resilient

Sri Lanka’s economy recorded real growth of 4.7% year-on-year during the first half of 2026.

Leading economic indicators point to continued momentum, although global uncertainty and possible climate-related disruptions could affect the outlook going forward.

Private-sector credit growth is gradually moderating following recent policy measures. However, the Central Bank expects credit flows to remain sufficient to support economic activity.

External sector shows signs of resilience

The external sector has remained resilient despite continuing tensions in the Middle East.

Sri Lanka’s current account is estimated to have recorded a surplus in August 2026, following four consecutive months of deficits.

This was backed by moderated merchandise imports, together with improved tourism earnings and workers’ remittances.

Gross official reserves increased to US$6.9 billion at the end of August, supported by net foreign exchange purchases by the Central Bank.

The rupee appreciated against the US dollar in July and August, before recording mixed movements in September.

Global and climate risks remain in focus

The Monetary Policy Board also considered uncertainty arising from geopolitical tensions in the Middle East and potential risks associated with El Niño conditions.

Changes in energy prices and weather patterns could affect inflation, production costs and broader economic activity.

The Central Bank said it would continue to make forward-looking, data-dependent policy decisions.

The Monetary authority remains ready to take timely and appropriate measures if inflationary pressures increase or inflation expectations become less firmly anchored, while supporting the economy to operate around its potential over the medium term.

Next monetary policy review

The Central Bank’s next regular monetary policy review statement is scheduled for 20 November 2026.