The Monetary Policy Board of the Central Bank of Sri Lanka (CBSL) has decided to maintain the Overnight Policy Rate (OPR) at 8.75%, following its latest meeting, citing evolving domestic and global economic conditions.
The Board said it took into account the effects of the proactive monetary policy tightening introduced in May 2026, along with other measures that have already taken effect. It also highlighted uncertainties stemming from geopolitical tensions in the Middle East and potential risks associated with El Niño conditions.
Despite these challenges, domestic economic activity has remained resilient, with the economy recording real growth of 4.7% year-on-year during the first half of 2026. Leading economic indicators point to continued momentum, although global and climate-related risks could affect the outlook, according to the CBSL.
Growth in private-sector credit has gradually moderated following recent policy measures. However, the Board expects credit flows to remain adequate to support economic activity.
Inflation Remains Elevated
Headline inflation increased to 8.0% year-on-year in August 2026, reflecting the impact of higher energy prices across several sectors.
The Central Bank expects headline inflation to remain in the high single digits through the first quarter of 2027, before gradually easing towards the 5% target.
Core inflation has also increased amid spillover effects from higher energy costs. Despite the current inflationary pressures, medium-term inflation expectations remain broadly anchored around the Central Bank’s target.
External Sector Remains Resilient
The external sector has continued to show resilience despite ongoing 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. The improvement was supported by moderated merchandise imports, as well as stronger earnings from tourism and workers’ remittances, according to the CBSL.
Gross official reserves increased to US$6.9 billion at the end of August 2026, supported by net foreign exchange purchases by the Central Bank.
The Sri Lankan rupee, which appreciated against the US dollar during July and August, recorded mixed movements in September. The recent sovereign rating upgrade is also expected to support market sentiment.
The Central Bank said it will continue to take a forward-looking and data-dependent approach to monetary policy. It added that if inflationary pressures intensify or inflation expectations show signs of becoming unanchored, timely and appropriate measures will be taken to ensure inflation stabilises around the target while supporting economic activity around its potential over the medium term.
