The Monetary Policy Board of the Central Bank of Sri Lanka (CBSL) has decided to maintain the Overnight Policy Rate (OPR) at 8.75%.
The decision was taken at the Board’s meeting held yesterday after considering developments and the outlook for both the domestic and global economies.
The Board particularly considered the impact of the proactive monetary policy tightening introduced in May 2026, along with other measures that have largely taken effect.
It also noted uncertainties arising from ongoing geopolitical tensions in the Middle East and potential risks to the economy from El Niño conditions.
Domestic economic activity remained resilient, with the economy recording real growth of 4.7% year-on-year during the first half of 2026.
The CBSL said leading economic indicators point to continued momentum, although global and climate-related uncertainties could affect the economic outlook.
Growth in private-sector credit has gradually moderated in response to recent policy measures, but the Central Bank expects credit flows to remain sufficient to support economic activity.
Inflation Rises to 8%
Headline inflation increased to 8.0% year-on-year in August 2026, reflecting the impact of higher energy prices across several sectors of the economy.
The CBSL projects that headline inflation will remain in the high single digits through the first quarter of 2027 before gradually easing towards the 5% target.
Core inflation also increased due to the spillover effects of higher energy prices. However, the Central Bank said medium-term inflation expectations remain broadly anchored around the target.
External Sector Remains Resilient
Despite ongoing tensions in the Middle East, Sri Lanka’s external sector has remained resilient.
The current account is estimated to have recorded a surplus in August 2026 after four consecutive months of deficits. The improvement was supported by moderated merchandise imports and increased earnings from tourism and workers’ remittances.
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, after appreciating against the US dollar in July and August, recorded mixed movements in September.
The CBSL said the recent sovereign rating upgrade is expected to further strengthen market sentiment.
The Central Bank said it will continue to follow 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, it will take timely and appropriate measures to stabilise inflation around the target while supporting the economy to operate around its potential over the medium term.
The next regular statement on the monetary policy review is scheduled to be released on November 20, 2026.
