CBSL holds policy rate at 8.75% as inflation rises to 8%

The Central Bank of Sri Lanka (CBSL) has decided to keep the Overnight Policy Rate (OPR) unchanged at 8.75%, as inflation rose to 8.0% in August 2026 and economic growth remained resilient.

The Monetary Policy Board made the decision at its meeting held yesterday after reviewing developments and the outlook for both the domestic and global economy.

The Board said it paid particular attention to the impact of the proactive monetary policy tightening carried out in May 2026, together with other measures whose effects have already materialised to a large extent.

It also considered uncertainty caused by evolving geopolitical tensions in the Middle East and possible economic risks linked to El Niño conditions.

Sri Lanka’s domestic economy continued to show resilience, recording real economic growth of 4.7% year-on-year during the first half of 2026.

Leading economic indicators suggest that this momentum is continuing, although global developments and climate-related uncertainties could affect the outlook.

Growth in credit to the private sector has gradually slowed in response to recent policy measures. However, the Central Bank expects credit flows to remain sufficient to support economic activity.

Headline inflation increased to 8.0% year-on-year in August 2026, mainly due to the impact of higher energy costs spreading across several sectors of the economy.

CBSL expects headline inflation to remain in the high single digits through the first quarter of 2027 before gradually easing towards the 5% target.

Core inflation has also increased due to spillover effects from higher energy prices. Despite the current rise in inflation, medium-term inflation expectations remain broadly anchored around the target, the Central Bank said.

Meanwhile, Sri Lanka’s external sector has remained resilient despite continuing tensions in the Middle East.

The current account is estimated to have recorded a surplus in August 2026 after four consecutive months of deficits. This was supported by lower merchandise imports and improved earnings from tourism and workers’ remittances.

Gross Official Reserves increased to USD 6.9 billion by the end of August 2026, supported by net foreign exchange purchases by the Central Bank.

The Sri Lankan rupee appreciated against the US dollar in July and August 2026 before recording mixed movements during September.

CBSL said the recent sovereign rating upgrade is expected to further strengthen market sentiment.

The Central Bank said it will continue to take a forward-looking and data-dependent approach when making monetary policy decisions.

If inflationary pressures increase further or inflation expectations begin to move away from the target, CBSL said it is prepared to take timely and appropriate action to bring inflation back towards the target while supporting the economy to operate around its potential over the medium term.

The next regular monetary policy review statement is scheduled to be released on November 20, 2026.