Sri Lanka Holds Key Rate at 7.75%

The Central Bank of Sri Lanka kept its benchmark interest rate unchanged at 7.75% at its March 2026 meeting, maintaining its current stance amid uncertainties stemming from the ongoing Middle East conflict. Headline inflation remained low at 1.6% in February, well below the 5% target, providing room to absorb the impact of higher domestic energy prices following a surge in global energy costs and trade disruptions. Inflation is now expected to reach the target in Q2 2026, earlier than previously projected, and stabilize around that level thereafter. Meanwhile, economic activity remained resilient, with GDP expanding 5.0% in 2025 despite disruptions from Cyclone Ditwah, while early 2026 indicators point to a strong recovery. However, prolonged geopolitical tensions could weigh on growth. The Sri Lankan rupee stayed broadly stable, although some depreciation pressures emerged following the escalation of the Middle East conflict.

The Central Bank of Sri Lanka kept its benchmark interest rate unchanged at 7.75% at its January 2026 policy meeting, holding borrowing costs for the fourth consecutive time, stating that the current stance is sufficient to steer inflation toward the 5% target. Headline inflation stayed low at 2.1% in December, although food prices rose due to cyclone-related supply disruptions and seasonal demand. Inflation is projected to accelerate gradually and move toward the target by the 2nd half of 2026, while core inflation is expected to firm further. Economic momentum remains resilient, with GDP expanding 5.0% in the first nine months of 2025 and private-sector credit continuing to grow, supported by improving activity, vehicle imports, and post-cyclone rebuilding. Despite a wider trade deficit driven by higher imports, strong tourism receipts and workers’ remittances helped sustain a current account surplus and lift official reserves. The next policy review is scheduled for March 25, 2026.

The Central Bank of Sri Lanka kept its benchmark interest rate unchanged at 7.75% at its November 2025 meeting, stating that the current stance remains appropriate for guiding inflation toward the 5% target. Headline inflation continued to accelerate in October and is expected to rise gradually before easing toward the target by the second half of 2026. Core inflation is also projected to increase modestly as demand strengthens, while medium-term expectations stay anchored. Economic indicators point to sustained growth momentum, supported by a broad-based expansion in private-sector credit amid a low-interest-rate environment and revived demand, including for vehicle imports. Imports have increased in recent months, widening the trade deficit, but robust tourism and workers’ remittances have helped cushion external pressures. The Central Bank reaffirmed its readiness to adjust policy if risks emerge.