‘No Change’ at Monetary Policy Review No. 02 for 2026

• Rates pick up at weekly T-Bill auction for the first time in 10 weeks
• Secondary Bond market active as yields continue to fluctuate

By Wealth Trust Securities

At the 02nd Monetary Policy Review for 2026 announced yesterday, the Central Bank of Sri Lanka (CBSL) decided to hold the Overnight Policy Rate at 7.75%. This marked the fourth consecutive monetary policy decision to keep rates on hold. The Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR), which are linked to OPR with pre-determined margins of ± 50 basis points, also remained unchanged at 7.25 per cent and 8.25 per cent, respectively. The statutory reserve rate was also left unchanged at 2.00%.

The CBSL communicated via the official press release the following information summarized below:

Inflation remained low at 1.6% (y-o-y) in February 2026, below the 5% target, providing space to absorb higher energy prices and related spill-overs.

The economy recorded strong real growth of 5.0% in 2025, despite disruptions from Cyclone Ditwah late in the year.

External sector performance remained robust in early 2026, supported by stronger export earnings, higher remittances, and tourism inflows.

Gross Official Reserves rose to $ 7.3 billion by end-February 2026, driven by FX purchases.

Nonetheless, the Middle East conflict continues to pose risks to Sri Lanka’s external sector outlook.

The weekly Treasury bill auction conducted yesterday saw weighted average yields increase across the board for the first time in 10 weeks.  Accordingly, the yield on the 91-day Bill rose by 3 basis points to 7.64%, the 182-day Bill increased by 4 basis points to 7.95%, while the 364-day Bill saw an uptick of 9 basis points to 8.32%.

The auction was undersubscribed at the first phase in competitive bidding, raising only Rs 34.94 billion, or 43.68% of the total offered amount of Rs 80.00 billion. The bid-to-cover ratio stood at 1.24 times.

The Phase II subscription across all three tenors is now open until 3.00 pm of business day prior to settlement date (i.e., 26.03.2026) at the WAYRs determined for the said ISINs at the auction.

The secondary Bond market yesterday remained volatile, with yields continuing to exhibit a see-saw movement. The market initially traded on a bullish note, with yields declining in early trading, supported by a considerable softening in global oil prices.

Brent crude oil futures fell by over 6% to around $98 per barrel, as US diplomatic efforts to ease tensions with Iran gained traction. This improvement in global risk sentiment supported buying interest, particularly across the belly segment, leading to a downward shift in yields.

However, yields reversed course later in the session on the back of profit-taking.

Accordingly, secondary market two-way quotes closed broadly steady to marginally lower, while activity and transaction volumes remained at robust levels.

In terms of the Secondary Bond market trade summary, the 15.02.28 maturity traded at the rate of 9.30%. The 15.10.28 maturity traded within the range of 9.40%-9.53%. The 15.06.29, 15.10.29 and 15.12.29 maturities traded within the ranges of intraday lows and highs of 9.65%-9.80%, 9.70%-9.80% and 9.70%-9.80%. The 01.03.30 maturity also traded within the range of 9.70%-9.80%. The 15.03.31 maturity changed hands within the range of 9.85%-10.02%. The 15.12.32 maturity traded within the range of 10.45%-10.60% whiles the 01.06.33 and 01.11.33 maturities traded within the range of 10.72%-10.85% and 10.80% to 10.90% respectively. The 15.06.35 maturity traded within the range of 10.97%-11.05%.

The total secondary market Treasury Bond/Bill transacted volume for 24 March was Rs. 18.64 billion.

In money market, the net liquidity surplus in money market was recorded at Rs. 298.34 billion yesterday. The Domestic Operations Department (DOD) of the Central Bank of Sri Lanka was seen draining out an amount of Rs. 100 billion by way of overnight repo auction at a weighted average rate of 7.60% and an amount of Rs 45.00 billion by way of seven-day REPO auction at a weighted average rate of 7.66%.

Further an amount of Rs 153.34 billion was deposited at Central Bank’s SDFR (Standing Deposit Facility Rate) of 7.25%.

The weighted average rates on overnight call money and Repo yesterday stood at 7.60% and 7.64% respectively.

Forex market 

In the Forex market, the Rupee firmed slightly, with spot USD/LKR closing at Rs.313.80/314.50 against the previous day’s finish of Rs.314.00/314.40.

The total USD/LKR traded volume for 24th March was Rs 47.50 million. 

(References: Public Debt Management Office - Ministry of Finance, Central Bank of Sri Lanka, Bloomberg E-Bond Trading Platform, Money Broking Companies)