CBSL Maintains Interest Rates as Inflation Expected to Rise in 2026
The Monetary Policy Board, at its meeting held yesterday, decided to maintain the Overnight Policy Rate (OPR) at the current level of 7.75%. The Board arrived at this decision after carefully considering evolving developments and the outlook on the domestic front and global uncertainties. The Board is of the view that the current monetary policy stance will support steering inflation towards the target of 5%.
Inflation measured by the Colombo Consumer Price Index (CCPI) remained unchanged at 2.1% in December 2025. However, food prices edged higher in December compared to November. This was due to supply chain disruptions caused by Cyclone Ditwah and higher demand for food during the festive season. Inflation is projected to accelerate gradually and move towards the target of 5% by the second half of 2026. Core inflation, which excludes price changes in volatile food, energy and transport from the CCPI basket, has also shown some acceleration in recent months. Going forward, core inflation is expected to accelerate further as demand in the economy strengthens. Meanwhile, inflation expectations appear to be well anchored around the inflation target.
The economy grew by 5.0% during the first nine months of 2025. Despite the slowdown in economic activity following Cyclone Ditwah in late 2025, early indicators reflect greater resilience. Credit disbursed to the private sector by commercial banks and other financial institutions continued its notable expansion in late 2025. This reflects increased demand for credit amid improving economic activity and increased vehicle imports. Post-cyclone rebuilding is expected to sustain this momentum.
The external current account is estimated to have recorded a sizeable surplus in 2025, despite the widening of the trade deficit. Foreign remittances remained healthy during 2025. Despite large debt service payments during the year, Gross Official Reserves were built up to USD 6.8 bn by the end of 2025. This was mainly supported by the net foreign exchange purchases by the Central Bank and inflows from multilateral agencies. The Sri Lanka rupee depreciated by 5.6% against the US dollar in 2025 and has remained broadly stable thus far during this year
The Board remains prepared to implement appropriate policy measures to ensure that inflation stabilises around the target, while supporting the economy to reach its potential.
The release of the next regular statement on the monetary policy review will be on 25 March 2026.
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