The Central Bank of Sri Lanka has left its Overnight Policy Rate unchanged at 8.75%, holding fire as inflation runs at four times the pace recorded at the end of last year.
The Monetary Policy Board took the decision at a meeting on Tuesday, announced on Wednesday morning as Monetary Policy Review No. 5 of 2026. The hold matches the outcome First Capital Research had assigned a 60% probability in its pre-policy note, against a 40% chance of a hike of up to 50 basis points.
The Board said it weighed the effects of the 100 basis point increase delivered in May, which took the rate from 7.75%, alongside uncertainty from Middle East tensions and potential El Niño disruption.
Inflation is the pressure point
Headline inflation reached 8.0% year-on-year in August, which the Central Bank attributes to the pass-through of an energy shock across multiple sectors. The National Consumer Price Index rose to 8.1% over the same month.
The Bank expects inflation to stay in high single digits through the first quarter of 2027 before easing toward its 5% target, and says medium-term expectations remain “broadly anchored.”
Hiru News reported further detail from the review: core CCPI at 5.1% and core NCPI at 6.3% in August, and the Average Weighted Lending Rate climbing from 11.76% in March to 12.59% by August as the May tightening fed through.
Growth and the external account
The economy grew 4.7% year-on-year in the first half, though momentum moderated from 5.1% in the first quarter to 4.2% in the second. Industry expanded 7.2% while agriculture contracted 0.6%.
The current account is estimated to have returned to surplus in August after four consecutive monthly deficits, helped by moderated imports and stronger tourism and remittance earnings. Gross Official Reserves rose to USD 6.9 billion at end-August.
The next policy statement is due on 20 November 2026.
NewsFirst carried the Central Bank’s statement verbatim; EconomyNext and Hiru published their own accounts.