Thursday Mar 26, 2026
Thursday Mar 26, 2026
Thursday, 26 March 2026 00:21 - - {{hitsCtrl.values.hits}}
The Central Bank of Sri Lanka (CBSL) yesterday announced an unchanged stance on policy rates at 7.75% following the Monetary Board Review on Tuesday, citing adequate buffers to withstand external shocks stemming from the ongoing conflict in the Middle East.
The Board noted that the decision was based on an assessment of evolving domestic and global developments, particularly uncertainties linked to geopolitical tensions and their potential impact on inflation and external stability.
“We have built sufficient buffers to absorb shocks both in terms of inflation and foreign reserve buffers, which are now at $ 7.3 billion,” CBSL Governor Dr. Nandalal Weerasinghe said during the post-Monetary Policy Review meeting media briefing yesterday.
He said the inflation target remains at 5%, while headline inflation stood at 1.6% in February and is projected to hover around 2% at the end of this month.
“Prior to the Middle East conflict, we had expected inflation to gradually converge toward the 5% target by the third quarter of 2026. However, with energy prices and external uncertainties factored in, that timeline may now shift slightly, with projections suggesting inflation could stabilise around the target by the second quarter of 2026 instead,” he added.
He opined that the deflation which existed for the past 11 months has provided an additional advantage to absorb short-term supply-side shocks, particularly those driven by higher global energy prices.
Nevertheless, the Governor cautioned that forecasting over longer horizons remains challenging, given the fluid nature of global developments. “A lot of things are changing day-by-day and week-by-week,” Dr. Weerasinghe noted.
Noting that the country’s gross official reserves stood at $ 7.3 billion by end-February, he described it as being at its highest level in recent years, compared to the precarious external position faced during the economic crisis in 2022.
He said the improved reserve buffer provides greater capacity to manage temporary disruptions in trade flows, fuel imports, and capital movements.
Stating that the risks to financial system stability were assessed, Dr. Weerasinghe assured the banking sector remains sound, with no immediate threats or significant adverse impact observed so far from recent volatility in global energy markets.
On the fiscal front, the Government’s improved fiscal performance and efforts to build buffers were cited as supportive factors in maintaining macroeconomic stability.
The Governor however stressed that the ability to withstand external shocks depends largely on the buffers built up in both monetary and fiscal spheres, as well as the duration of the shock itself.
“The capability and the capacity to withstand potential headwinds will depend on how much buffers and how long we can sustain in this volatile environment,” Dr. Weerasinghe cautioned.
He also said rates could be tightened if outlook shifts, based on the duration and intensity of the Middle East conflict, but sees no immediate need to change current stance. (CdeS)
