CB Governor gives upbeat assessment of economy with 2026 growth set at 5%

Central Bank Governor, Dr. Nandalal Weerasinghe kicked off the New Year with policies aimed at shifting gears from recovery in the economy to an enhanced growth while building resilience.

At a function held at the Central Bank to unveil the customary policy agenda for 2026 and beyond, Dr. Weerasinghe was much more relaxed than ever before when he said he expected another year of 4 to 5 percent growth in 2026, backed by private and public spend, the latter of which is going to be relatively higher than before.

“Continuing the growth momentum reported during the last two years, the economy is expected to grow by around 4 - 5 percent in 2026”, he said unambiguously delivering the policy agenda.

“Having made notable progress in building buffers across the main sectors of the economy, such as the fiscal, external, and monetary sectors, we believe that the economy possesses greater capacity to bounce back from this devastation much faster than in the past”, he added in reference to the floods last year.

Sri Lankan economy was estimated to have grown by around 5.0 percent in 2025 despite temporary setback due to the floods. And the prices rose by only 2.1 percent in the 12-months through December 2025.

Dr. Nandalal Weerasinghe Pic by Pradeep Pathirana

He also expressed his optimism over the ability to maintain price stability, a pre-requisite for growth at 5.0 percent, their medium term target but said the Central Bank might review the agreement with the government on the inflation target this year.

This comes on the backdrop of the Central Bank undershooting its target inflation for two back-to-back years although the undershooting helped the economy to bounce back quickly.

The Central Bank can inflation the economy by 5 percent with plus or minus 2 percent as its upper and lower bands but from 2024 second half through to this day, the inflation has been even less than their lower band of 3.0 percent, which is really good.

“The Central Bank will conduct a thorough review of macroeconomic developments and structural changes in the economy, followed by an analytical assessment of the target”, Dr. Weerasinghe said.

On the financial system stability, the Governor sounded upbeat with the improved asset quality, profitability and enhanced efficiency in the sector.  

Meanwhile, presenting the advance calendar, the Central Bank said they had scheduled their first monetary policy to January 27 with 6 meetings scheduled for the year.

Key policies announced to be implemented in 2026 and beyond include;

• Modifications to banks’ statutory reserve requirement to influence liquidity
• Benchmark intra-day reference Fx rate to be introduced for better transparency
• Base years for NEER & REER indices to be updated
• Establishing a coordinated data sharing arrangements between Central Bank & other financial sector regulators
• Enhancing banking sector resilience through Countercyclical Capital Buffer framework
• Green Finance Taxanomy to be broadened
• Legal framework governing non-bank finance companies to be reviewed
• Push through masterplan for consolidation of banks and finance companies for more resilient financial sector
• Further enhancements to the Sri Lanka Deposit Insurance Scheme
• Legal reforms to payment & settlement system to be undertaken
• Gradual relaxation of capital flow measures imposed since 2020
• Comprehensive review of foreign exchange policy framework
• Strengthening Anti-Money Laundering (AML)/Combating of Financing of Terrorism (CFT) framework and Counter-Proliferation Financing (CPF) ahead of the upcoming mutual evaluation
• Integrating climate risk considerations into financial system stability going forward