The Central Bank of Sri Lanka decides to keep the overnight policy interest rate unchanged

At the meeting held yesterday by the Monetary Policy Board of the Central Bank of Sri Lanka, steps have been taken to maintain the current policy interest rate at 8.75 percent without change. The Central Bank arrived at this decision after extensively analyzing the prevailing domestic and international economic trends and future forecasts.

Amidst the renewed unrest in the Middle East region, prices of major global commodities, including crude oil, have risen, which could adversely affect global economic growth as well as Sri Lanka's economy across various sectors. Meanwhile, due to the increase in domestic food and energy costs, the country's overall inflation has risen to 6.8 percent on an annual basis by June 2026.

Although the inflation rate may remain above the expected 5 percent threshold in the short term, it is estimated to gradually decline towards the target level thereafter. While supply-side pressures were primarily responsible for this recent increase in inflation, Central Bank observations also reveal that demand conditions in the economy have strengthened.

Looking at the external economic sector, although the pressure from the Middle East crisis has somewhat eased, renewed tensions create uncertainty for the future. Due to high fuel import costs widening the trade deficit and slower income from the tourism sector, an external current account deficit has been recorded since April 2026.

However, it is expected that the demand for imports of various goods, including motor vehicles, will decrease in the future due to recently adopted policy measures. Furthermore, remittances from migrant workers remained strong during the period up to 2026, and while foreign debt service payments were being made, the country's gross official reserves stood at USD 6.45 billion by the end of June. The Central Bank further states that the value of the Sri Lankan Rupee remained somewhat stable over the past few weeks.