Sri Lanka Central Bank Maintains Policy Rate at 8.75% Amid Inflation Concerns
The Monetary Policy Board of the Central Bank of Sri Lanka has decided to maintain the Overnight Policy Rate (OPR) at 8.75%, following its latest monetary policy review meeting.
The decision was made after considering current domestic and global economic conditions, including rising commodity prices, inflation pressures, and uncertainty caused by renewed tensions in the Middle East.
Inflation Rises Above Target Level
According to the Central Bank, headline inflation increased to 6.8% year-on-year in June 2026, mainly due to increases in domestic energy and food prices.
The Central Bank expects inflation to remain above the 5% target level in the short term before gradually returning to the targeted range.
Core inflation is also expected to rise and remain close to the headline inflation target, while inflation expectations continue to remain stable over the medium term.
Global Oil Prices Impact Economy
The Central Bank noted that renewed tensions in the Middle East have caused a significant increase in global commodity prices, particularly petroleum prices.
These developments could negatively affect global economic growth and create additional pressure on Sri Lanka through higher import costs and other economic channels.
Monetary Tightening Expected to Control Demand Pressures
Although the recent increase in inflation has mainly been driven by supply-related factors, the Central Bank said domestic demand conditions have also improved.
The monetary policy tightening introduced in May 2026, together with other government measures, is expected to gradually reduce excessive credit growth and limit demand pressures in the economy.
External Sector Faces Continued Uncertainty
The Central Bank stated that pressure on Sri Lanka’s external sector caused by the Middle East conflict has eased to some extent, but uncertainty remains due to ongoing geopolitical developments.
Since April 2026, Sri Lanka’s external current account has recorded a deficit, mainly due to higher fuel import costs and slower growth in tourism earnings.
However, workers’ remittances have remained strong during 2026, supporting the country’s external position.
Foreign Reserves Reach USD 6.45 Billion
Sri Lanka’s gross official reserves stood at USD 6.45 billion at the end of June 2026, despite foreign debt service payments.
The Central Bank also noted that the Sri Lankan rupee has shown greater stability in recent weeks following policy measures implemented earlier.
Central Bank to Monitor Economic Risks
The Central Bank said it will continue closely monitoring both domestic and global developments and remains prepared to introduce appropriate measures if required.
The institution expects previous monetary policy tightening measures to gradually influence economic conditions while maintaining inflation stability and supporting sustainable economic growth.
The next regular monetary policy review statement is scheduled to be released on 30 September 2026.
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