Sri Lanka can hold inflation at current levels even with crude at around $100 a barrel, Central Bank Governor Nandalal Weerasinghe said — but if elevated oil prices persist for a long period, inflation will go higher than it is now.
The Governor was speaking at an institutional investor forum organised jointly by the Colombo Stock Exchange and the Securities and Exchange Commission of Sri Lanka, EconomyNext reported.
The assumption that has already been overtaken
The Central Bank built its June projections on an expectation that oil would settle near $90 a barrel towards the end of the year. It has not.
“Right now, it appears now is still at an elevated level than what we expected.”
What follows is the more important half, because it sets out where the Bank’s tolerance actually ends:
“But even with that elevated level still, we think even around $100 a barrel, we should be able to manage this inflation at current levels.”
That is a statement about holding the line, not about improvement — the benchmark being defended is today’s inflation rate, which is already a 40-month high. And the Governor was explicit that the tolerance is conditional on duration rather than on price alone. If high oil prices persist for “a longer period”, he said, supply-side price shocks will feed into domestic prices: “That’s going to see higher inflation than what we see now.”
Why that may not produce a rate rise
Weerasinghe drew a distinction that matters for anyone reading the remarks as a signal on interest rates.
“But still, the question is whether we need to fight with monetary policy or not… because we have to see source of inflation and whether that is creating anchoring future expectation as well as creating kind of a demand conditions on the other side.”
“Monetary policy is mainly demand-driven. That’s what we are focusing on.”
An oil shock is a supply-side event. On the Governor’s framing, it becomes a monetary policy problem only if it starts shifting expectations about future prices or spilling into demand — so the Bank may absorb a supply shock without responding to it, which is a materially different posture from treating any inflation rise as a trigger for tightening.
The numbers behind the warning
Inflation was 8.1 per cent in September on the Colombo Consumer Price Index, a 40-month high, driven mainly by market-reflected fuel prices and their spillover through the wider economy. The state-owned Ceylon Petroleum Corporation has raised fuel prices by around 50 per cent since the Middle East conflict began.
EconomyNext notes the structural reason the pass-through is so direct. Sri Lanka depends on imported fossil fuels for thermal electricity generation, freight transport and agricultural machinery, so a higher crude import bill moves rapidly through supply chains into the operating costs of manufacturers, farmers and distributors, and then into household prices through pump prices, electricity tariffs and daily essentials.
And unlike in the past, the government cannot cushion it: Sri Lanka cannot subsidise energy under the IMF condition requiring market-reflected prices in return for its US$3 billion Extended Fund Facility.
Where this sits against the Governor’s other remarks
This desk reported on Wednesday that Weerasinghe expects inflation to stay at or slightly above 8 per cent into the first quarter of 2027 before returning to the 5 per cent target from the second quarter — a forecast he explicitly conditioned on petroleum prices remaining near current levels. Thursday’s filing is that condition stated from the other direction.
That earlier account, from NewsFirst, did not name the occasion on which the Governor spoke. EconomyNext places him at a CSE/SEC institutional investor forum “this week”. The two sets of remarks are consistent and fall in the same week, but neither filing states that they were made on the same occasion, and this desk is not treating them as confirmed to be one event.
Not reported
The filing does not give the date of the forum, say who else spoke or what the Governor was asked, or report whether he addressed the policy rate directly. It gives no current oil price against which the $90 assumption and the $100 tolerance can be placed, and does not say what Brent or WTI were trading at when he spoke. It does not say what inflation reading the Bank projects at $100 oil, over what horizon the “longer period” is measured, or what would count as evidence that expectations had become unanchored. No October inflation figure is given — the 8.1 per cent reading is for September.
On sourcing: this report rests on a single verified newsroom. This desk checked the Daily Mirror’s breaking-news listing and the Hiru and NewsFirst rails and found no other verified outlet filing on the Governor’s oil-price remarks.
