The Central Bank of Sri Lanka (CBSL) has decided to maintain the Overnight Policy Rate (OPR) at 8.75%, following its latest Monetary Policy Board meeting held yesterday (22).
The Monetary Policy Board arrived at the decision after carefully considering the evolving conditions and outlook on the domestic and global fronts, the CBSL said in a statement.
Renewed tensions in the Middle East have resulted in a surge in global commodity prices, particularly petroleum. These developments are likely to dampen global economic prospects with potential spillovers to the domestic economy through multiple channels, the CBSL noted.
Meanwhile, headline inflation accelerated to 6.8% (y-o-y) in June 2026, mainly due to higher domestic energy and food prices. Headline inflation is expected to remain above the target of 5% in the near term before gradually returning to the target level. Core inflation is also expected to increase and remain around the headline inflation target, according to the CBSL.
Despite the near-term uptick in actual inflation, inflation expectations remain well-anchored around the inflation target over the medium term. Although the acceleration of headline inflation is largely supply-driven, demand conditions in the economy have also strengthened.
However, together with other policy measures taken by the government and the Central Bank, the monetary policy tightening in May 2026 and its gradual transmission to the real economy are expected to moderate credit growth and the buildup of demand pressures going forward, the CBSL stated.
Meanwhile, the pressure on the external sector caused by the Middle East conflict has eased somewhat, although the outlook remains uncertain due to renewed tensions. Since April 2026, the external current account recorded a deficit, mainly because higher fuel import costs widened the merchandise trade deficit and tourism earnings slowed down. Going forward, import demand, including demand for motor vehicles, is expected to reduce in response to recent policy measures, the CBSL added.
Meanwhile, workers’ remittances have remained strong so far in 2026. Gross Official Reserves stood at USD 6.45 billion at the end of June 2026, amid foreign debt service payments. The Sri Lanka rupee has stabilised somewhat in recent weeks reflecting the impact of policy measures that have been taken thus far.
The Central Bank said it will continue to closely monitor domestic and global developments for emerging risks. The Central Bank expects the monetary policy tightening carried out previously to transmit to the economy in the period ahead. The CBSL noted that it stands ready to take appropriate measures to ensure that inflation stabilises around the 5% target, while supporting the economy to reach its potential over the medium term.
