COLOMBO, March 25 : Sri Lanka’s central bank kept its overnight policy rate unchanged on Wednesday, adopting a cautious stance amid uncertainty over the inflationary impact of energy prices due to the Middle East crisis.
The Central Bank of Sri Lanka (CBSL) maintained the overnight policy rate at 7.75 per cent, as forecast by a Reuters poll, citing low inflation and a restrained approach on the fallout of the U.S.-Israeli war on Iran.
Inflation is now expected to reach the central bank’s target of 5 per cent in the second quarter of 2026, it said in a statement, after Sri Lanka raised fuel prices by about 35 per cent this month.
“However, spillovers from the ongoing conflict could weigh on domestic economic activity in the period ahead should the conflict be prolonged,” the bank warned.
CBSL has held rates steady since last May as the nation recovers from a 2022 financial crisis driven by a severe dollar shortage.
Supported by a $2.9 billion program with the International Monetary Fund (IMF), Sri Lanka posted a strong economic recovery last year, growing by 5 per cent and now targeting growth between 4 per cent and 5 per cent in 2026.
“What stands out is that they see space for inflation to rise because of energy prices but still stay contained,” said Anjali Hewapathage, deputy head of macroeconomic research at Colombo-based Frontier Research, referring to CBSL.
“From now to June, underlying economic momentum has the space to keep pace despite the disruption because domestic liquidity and credit has been quite substantial as well.”
An IMF team will arrive in Colombo on Friday for the combined fifth and sixth reviews of the bailout.
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