Colombo, Sri Lanka – 30 September 2026 – The Central Bank of Sri Lanka (CBSL) today announced its decision to maintain the Overnight Policy Rate (OPR) at the current level of 8.75%. The Monetary Policy Board, which convened yesterday, cited a careful assessment of evolving domestic and global economic conditions, alongside the impact of previous policy measures, as key factors in their decision.
Policy Stance Holds Steady
The decision to keep the OPR unchanged reflects the Board’s confidence that the proactive monetary policy tightening implemented in May 2026, along with other complementary measures, has largely materialised as intended. However, the Board acknowledged the persistent uncertainties stemming from escalating geopolitical tensions in the Middle East and the potential economic ramifications of El Niño conditions, which continue to pose risks to the outlook.
Robust Domestic Economic Performance
Sri Lanka’s economy has demonstrated notable resilience, recording a real growth rate of 4.7% year-on-year in the first half of 2026. Leading economic indicators suggest a continuation of this positive momentum. While global and climate-related uncertainties could temper future prospects, credit growth to the private sector, although gradually moderating in response to recent policy actions, is expected to remain adequate to support ongoing economic activity.
Navigating Inflationary Pressures
Headline inflation experienced an uptick, reaching 8.0% year-on-year in August 2026. This rise is primarily attributed to the pass-through effects of an energy shock across various sectors of the economy. The CBSL projects headline inflation to persist in high single digits through the first quarter of 2027 before gradually easing towards its medium-term target of 5%. Core inflation has also risen due to spillovers from higher energy prices. Crucially, the Central Bank noted that despite the current spike, medium-term inflation expectations remain broadly anchored around the target.
The CBSL’s latest fan chart projections illustrate this trajectory, forecasting inflation to converge towards the 5% target after Q1 2027, with confidence bands showing the inherent uncertainty of such forecasts.
Strengthening External Sector Resilience
Despite the backdrop of ongoing Middle East tensions, the external sector has maintained its resilience. Sri Lanka’s current account recorded an estimated surplus in August 2026, marking a positive shift after four consecutive months of deficits. This improvement was driven by a moderation in merchandise imports, coupled with enhanced earnings from tourism and robust workers’ remittances. Gross Official Reserves also saw an increase, reaching USD 6.9 billion by the end of August 2026, a figure which includes the swap facility from the People’s Bank of China. The Sri Lanka rupee, having appreciated against the US dollar in July and August, exhibited mixed movements during September. Furthermore, a recent Sovereign rating upgrade is anticipated to bolster market sentiments.
Forward-Looking and Data-Dependent Approach
The Central Bank reiterated its commitment to a forward-looking and data-dependent approach in its future policy deliberations. The CBSL stands ready to implement timely and appropriate measures should inflationary pressures intensify or if inflation expectations show signs of de-anchoring. This proactive stance aims to ensure inflation stabilises around the target while supporting the economy to operate at its potential over the medium term.
The next regular statement on the monetary policy review is scheduled for 20 November 2026.
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