Central Bank keeps policy rate at 8.75% due to inflation rise

Colombo, July 22 (Daily Mirror) - The Central Bank of Sri Lanka (CBSL) has decided to maintain the Overnight Policy Rate (OPR) at 8.75%, citing the need to carefully assess evolving domestic and global economic conditions.

The Monetary Policy Board, at its meeting held yesterday (21), decided to keep the policy rate unchanged, while warning that renewed tensions in the Middle East have pushed up global commodity prices, particularly petroleum prices, creating risks for economic growth.

According to the CBSL’s latest Monetary Policy Review for July 2026, headline inflation increased to 6.8% year-on-year in June 2026, mainly due to higher domestic energy and food prices.

The Central Bank said inflation is expected to remain above the 5% target in the near term before gradually returning to the targeted level. Core inflation is also expected to rise and remain around the headline inflation target.

Although the recent increase in inflation has largely been driven by supply-side factors, the CBSL noted that domestic demand conditions have strengthened. However, it expects the monetary policy tightening introduced in May 2026 and other government measures to gradually moderate credit growth and demand pressures.

The Central Bank said external sector pressures caused by the Middle East conflict have eased to some extent, but uncertainty remains due to renewed geopolitical tensions.

Since April 2026, Sri Lanka’s external current account has recorded a deficit, mainly due to increased fuel import costs widening the trade deficit and a slowdown in tourism earnings.

Meanwhile, workers’ remittances have remained strong during 2026, while gross official reserves stood at USD 6.45 billion at the end of June 2026, including the swap facility from the People’s Bank of China.

The Sri Lankan rupee has also stabilised in recent weeks, reflecting the impact of policy measures implemented so far, the CBSL said.

The Central Bank said that it will continue monitoring domestic and global developments and is prepared to take appropriate measures to ensure inflation stabilises around the 5% target while supporting economic growth.

The next regular monetary policy review statement is scheduled to be released on September 30, 2026.