Central Bank keeps policy rate unchanged at 8.75%

The Monetary Policy Board has decided to keep the Overnight Policy Rate (OPR) unchanged at 8.75%, citing the impact of earlier policy tightening as well as continued uncertainty from geopolitical tensions in the Middle East and possible El Niño conditions.

The decision was taken at the Board’s meeting on Tuesday after considering developments and the outlook for both the domestic and global economies.

The Board said it had paid particular attention to the effects of the proactive monetary policy tightening introduced in May 2026, together with other measures whose impact had already largely materialised.

Sri Lanka’s economy remained resilient during the first half of 2026, recording year-on-year real growth of 4.7%. Leading economic indicators point to continued momentum, although global and climate-related uncertainties could weigh on the outlook.

Growth in credit to the private sector has gradually moderated in response to recent policy measures, but credit flows are expected to remain sufficient to support economic activity.

Headline inflation rose to 8% year-on-year in August, reflecting the wider impact of the energy shock across the economy. Inflation is expected to remain in the high single digits through the first quarter of 2027 before easing towards the 5% target.

Core inflation has also increased due to spillovers from higher energy prices, although medium-term inflation expectations remain broadly anchored around the target.

The external sector has remained resilient despite the continuing conflict in the Middle East. The current account is estimated to have returned to a surplus in August after four consecutive months of deficits, supported by lower merchandise imports and stronger earnings from tourism and workers’ remittances.

Gross official reserves increased to US$6.9 billion at the end of August, supported by net foreign exchange purchases by the Central Bank.

The Sri Lankan rupee appreciated against the US dollar in July and August before recording mixed movements in September. The Central Bank said the recent sovereign rating upgrade was expected to further strengthen market sentiment.

The Central Bank said it would continue to take a forward-looking and data-dependent approach to monetary policy. It added that it stood ready to act if inflationary pressures intensified or inflation expectations showed signs of becoming unanchored.

The next monetary policy review is scheduled for 20 November 2026.