Borrowing costs rise as prime lending rate hits two-year high

The prime lending rate has returned to double-digit territory for the first time in more than two years, marking a swift transmission of the Central Bank of Sri Lanka’s (CBSL) recent policy tightening. This shift signals potentially higher borrowing costs for businesses amid strong credit growth.

The Average Weighted Prime Lending Rate (AWPR) - the benchmark rate charged by banks to their most creditworthy corporate customers—rose by 10 basis points to 10.00 percent in the week ended June 5, 2026, up from 9.90 percent a week earlier, according to Central Bank data. The latest reading marks the first return to double-digit levels since May 2024 and is 163 basis points higher than a year ago.

This increase follows the CBSL’s decision just over a week ago to raise the Overnight Policy Rate (OPR) by a full percentage point to 8.75 percent from 7.75 percent, its first monetary tightening move in nearly three years. The regulator stated that the rate hike was aimed at containing inflationary pressures stemming from higher global oil prices amid heightened geopolitical tensions in the Middle East, while also addressing pressures on the rupee, rapid credit expansion, and risks to macroeconomic stability.

Market interest rates have already begun adjusting to the policy move, with the Average Weighted Call Money Rate rising to 9.16 percent by June 5 from 9.10 percent the previous week. Treasury bill yields also continued to climb, with the benchmark 364-day yield reaching 10.02 percent. These shifts come against a backdrop of robust financial activity, as private sector credit expanded by Rs. 100.5 billion in April, recording a year-on-year growth of 27 percent. During the same period, broad money supply (M2b) expanded by 11.6 percent year-on-year, while the rupee had depreciated by 7.8 percent against the US dollar as of June 5.