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 monetary policy review.
The Board said the decision was based on evolving domestic and global economic conditions, including the effects of proactive monetary policy tightening introduced in May 2026 and other measures already implemented.
It also highlighted uncertainties arising 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 Sri Lanka’s 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 economic momentum, although global and climate-related risks could affect the outlook.
Private-sector credit growth has gradually moderated following recent policy measures. However, the Monetary Policy 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, mainly reflecting the impact of higher energy prices across several sectors.
The CBSL expects headline inflation to remain in the high single digits through the first quarter of 2027 before gradually declining towards the 5% target.
Core inflation has also increased due to spillover effects from higher energy costs. However, the Central Bank said medium-term inflation expectations remain broadly anchored around its target.
External Sector Remains Resilient
Sri Lanka’s external sector has continued to show resilience despite ongoing geopolitical tensions in the Middle East.
The country’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, along with stronger 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, 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 CBSL said it will continue to follow a forward-looking and data-dependent approach to monetary policy.
The Central Bank added that if inflationary pressures intensify or inflation expectations show signs of becoming unanchored, it will take timely and appropriate measures to ensure inflation stabilises around the target while supporting economic activity around its potential over the medium term.
