The Monetary Policy Board of the Central Bank of Sri Lanka (CBSL) has decided to maintain the Overnight Policy Rate (OPR) at 8.75%, balancing evolving domestic conditions against broader international headwinds. Meeting to assess the economic landscape, the Board evaluated the ongoing impact of policy tightening introduced in May 2026 alongside other existing monetary interventions. The assessment also factored in external vulnerabilities, notably heightened geopolitical tensions across the Middle East and potential economic risks linked to El Niño climate conditions.
Despite prevailing external and climatic risks, Sri Lanka’s domestic economy demonstrated continued resilience, registering real growth of 4.7% year-on-year across the first half of 2026. While credit growth to the private sector has gradually decelerated following recent policy measures, the Central Bank noted that credit flows remain sufficient to sustain ongoing commercial activity, with leading economic indicators continuing to show forward momentum.
Key Developments
- Policy Rate Unchanged: The Overnight Policy Rate is maintained at 8.75% as prior tightening measures from May 2026 take effect.
- Resilient Growth: Real year-on-year gross economic growth reached 4.7% during the first half of 2026.
- Inflation Pressures: Headline inflation accelerated to 8.0% year-on-year in August 2026, primarily driven by rising energy costs across multiple economic sectors.
- Target Trajectory: Headline inflation is projected to stay in high single digits through the first quarter of 2027 before declining toward the 5% medium-term target.
- Current Account Surplus: The external account swung to an estimated surplus in August 2026 after four straight months of deficits, supported by lower merchandise imports alongside climbing revenues from tourism and workers’ remittances.
- Reserve Accumulation: Gross official reserves expanded to US$6.9 billion by the end of August 2026, aided by CBSL net purchases of foreign exchange.
Core inflation has also witnessed an increase due to spillover effects from higher energy prices, though medium-term expectations remain anchored near target levels. In foreign exchange markets, the Sri Lankan rupee showed mixed movements in September after posting gains against the US dollar in July and August. A recent sovereign credit rating upgrade is anticipated to further bolster market confidence. The CBSL affirmed that it will retain a data-dependent, forward-looking monetary stance, standing ready to enact timely measures should inflationary pressures intensify or threaten medium-term stability.