Thursday Jul 23, 2026
Thursday Jul 23, 2026
Thursday, 23 July 2026 00:28 - - {{hitsCtrl.values.hits}}
The Central Bank of Sri Lanka (CBSL) yesterday announced an unchanged stance on policy rates at 8.75% following the Monetary Board Review on Tuesday, citing evolving external shocks stemming from the renewed tensions 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.
“Renewed tensions in the Middle East have resulted in a surge in global commodity prices, particularly petroleum. These developments are likely to dampen global economic prospects with potential spillovers to the domestic economy through multiple channels,” it said in its Monetary Policy statement.
It noted that the CBSL will continue to closely monitor domestic and global developments for emerging risks.
Noting that headline inflation accelerated to 6.8% year-on-year (YoY) in June 2026, mainly due to higher domestic energy and food prices, the CBSL said headline inflation is expected to remain above the target of 5% in the near term before gradually returning to the target level.
It also noted that core inflation is also expected to increase and remain around the headline inflation target.
“In spite of the near-term uptick in actual inflation, inflation expectations remain well-anchored around the inflation target over the medium term,” the statement added.
Although the acceleration of headline inflation is largely supply-driven, the CBSL said demand conditions in the economy have also strengthened.
“The CBSL expects the monetary policy tightening carried out previously to transmit to the economy in the period ahead. It stands ready to take appropriate measures to ensure that inflation stabilises around the 5% target, while supporting the economy to reach its potential over the medium term,” the statement said.
However, together with other policy measures taken by the Government and the CBSL, the monetary policy tightening in May 2026 and its gradual transmission to the real economy are expected to moderate credit growth and the buildup of demand pressures going forward.
It added that the pressure on the external sector caused by the Middle East conflict has eased somewhat, although the outlook remains uncertain due to renewed tensions.
“Since April 2026, the external current account has recorded a deficit, mainly because higher fuel import costs widened the merchandise trade deficit and tourism earnings slowed down. Going forward, import demand, including demand for motor vehicles, is expected to reduce in response to recent policy measures,” it noted.
Meanwhile, the statement said workers’ remittances have remained strong so far in 2026. Gross official reserves stood at $ 6.45 billion at the end of June 2026, amid foreign debt service payments. The Sri Lankan rupee has stabilised somewhat in recent weeks, reflecting the impact of policy measures that have been taken thus far.
