CBSL Keeps Overnight Policy Rate Unchanged at 8.75%

The Central Bank of Sri Lanka (CBSL) has decided to maintain the Overnight Policy Rate (OPR) at 8.75%, following the Monetary Policy Board meeting held yesterday (22).

In a statement, the CBSL said the decision was taken after carefully assessing evolving domestic and global economic conditions.

The Central Bank noted that renewed tensions in the Middle East have driven up global commodity prices, particularly petroleum, posing risks to global economic growth and creating potential spillover effects on Sri Lanka’s economy.

Sri Lanka’s headline inflation accelerated to 6.8% year-on-year in June 2026, mainly due to higher domestic energy and food prices. The CBSL expects inflation to remain above its 5% target in the near term before gradually easing, while core inflation is also projected to remain close to the target level.

Despite the recent rise in inflation, the Central Bank said medium-term inflation expectations remain well anchored. It added that although the increase in inflation has largely been driven by supply-side factors, stronger domestic demand has also contributed.

The CBSL said the monetary policy tightening implemented in May 2026, together with other government policy measures, is expected to moderate credit growth and ease demand pressures in the coming months.

On the external sector, the Central Bank said pressures linked to the Middle East conflict have eased somewhat, although uncertainty remains. Since April, Sri Lanka’s external current account has recorded a deficit due to higher fuel import costs, which widened the trade deficit, while tourism earnings slowed.

However, the Bank expects import demand, including for motor vehicles, to decline in response to recent policy measures.

The CBSL also highlighted that workers’ remittances have remained strong throughout 2026. Gross Official Reserves stood at USD 6.45 billion at the end of June, despite continued foreign debt servicing, while the Sri Lankan rupee has stabilized in recent weeks.

The Central Bank reaffirmed that it will continue to closely monitor domestic and global developments and stands ready to take further policy action if necessary to ensure inflation returns to its 5% target while supporting sustainable economic growth.