The Central Bank of Sri Lanka keeps policy rate unchanged

The Central Bank of Sri Lanka (CBSL) yesterday (28) left the Overnight Policy Rate (OPR) unchanged at 7.75%, signalling confidence in the current disinflationary trajectory while acknowledging early signs of demand-driven price pressures and improving economic activity.
The decision, taken by the Monetary Policy Board following its January policy review, reflects a balance between maintaining price stability and supporting the ongoing recovery amid lingering global uncertainties. The Central Bank reiterated that the prevailing policy stance remains consistent with guiding inflation towards the 5% medium-term target.
Headline inflation, as measured by the Colombo Consumer Price Index (CCPI), remained unchanged at 2.1% in December 2025. However, the Bank noted a marginal uptick in food prices during the month, attributed to supply disruptions following Cyclone Ditwah and increased seasonal demand. Inflation is projected to gradually accelerate and converge towards the target by the second half of 2026, pointing to a normalisation from the current low base.
Core inflation has also shown moderate acceleration in recent months, reflecting strengthening demand conditions. The CBSL observed that inflation expectations remain well anchored, suggesting limited immediate upside risks despite recent price movements.
On the growth front, the economy expanded by 5% during the first nine months of 2025. While economic activity moderated in the aftermath of Cyclone Ditwah, high-frequency indicators suggest underlying resilience. Credit to the private sector continued to expand at a notable pace towards the latter part of the year, supported by improved business sentiment and higher vehicle imports. The Central Bank expects post-cyclone reconstruction and recovery-related spending to sustain credit growth in the period ahead.
External sector developments remain supportive of macroeconomic stability. The current account is estimated to have recorded a sizeable surplus in 2025, despite pressures from a widening trade deficit. Workers’ remittances remained robust, while Gross Official Reserves rose to $ 6.8 billion by end-2025, supported by Central Bank foreign exchange purchases and multilateral inflows, including the swap arrangement with the People’s Bank of China.
The Sri Lankan rupee depreciated by 5.6% against the US dollar in 2025 but has remained broadly stable so far in 2026, reflecting improved external buffers and tighter domestic financial conditions.
Looking ahead, the Monetary Policy Board underscored its readiness to recalibrate policy if inflationary pressures deviate from the projected path, while continuing to support the economy’s return to potential output.
The next regular monetary policy review will be released on 25 March 2026.