CBSL maintains Overnight Policy Rate at current level

In accordance with the decision taken by the Monetary Policy Board, the Central Bank of Sri Lanka (CBSL) will maintain the Overnight Policy Rate (OPR) at the current level without revision, CBSL Governor Dr. P. Nandalal Weerasinghe said.

The Monetary Policy Board of the CBSL, decided to maintain the Overnight Policy Rate (OPR) of the Central Bank at its current level of 8 percent at its meeting held on Tuesday (28).

The Board arrived at this decision following a careful analysis of the current and expected macroeconomic developments on the domestic and global fronts. This decision was made with a medium-term view of ensuring that inflation converges to the target of 5 %, while supporting the economy to reach its potential.

The Board observed that the current period of deflation, as projected earlier, has largely been an outcome of administratively determined energy price reductions.

Speaking on the Headline inflation, he said that it is projected to remain negative in the near term, before converging to the target.

“The Headline inflation, as measured by the year-on-year change in the Colombo Consumer Price Index (CCPI), remained in the negative territory for the fourth consecutive month in December 2024.”’

“Latest projections indicate deeper deflation than previously projected, mainly due to the more than anticipated downward adjustment in the electricity tariff announced in January 2025,” he added.

He said inflation is expected to turn positive from mid-2025 and converge towards the targeted level of 5 per cent over the medium term, supported by appropriate policy adjustments. As the Economic Research Department reveals, the recovery in domestic economic activity continues.

As per the GDP estimates published by the Department of Census and Statistics (DCS), the economy is estimated to have grown by 5.5 percent (year-on-year) in Q3 of 2024, following an expansion of 4.7 percent (year-on-year) recorded in Q2 of 2024.

The latest economic indicators suggest that robust economic growth is likely to have continued, resulting in higher growth for 2024 than initially projected.

The Governor noted that downward adjustment in overall market lending interest rates continued.

Market lending and deposit interest rates also continued to decline, reflecting the accommodative monetary policy stance.

Supported by lower market lending interest rates and reflecting the recovery in economic activity, the growth of credit extended to the private sector by Licensed Commercial Banks (LCBs) continued to accelerate.

The expansionary momentum of credit to the private sector is expected to persist. Meanwhile, yields on government securities continued to decline, reflecting improved fiscal performance and reduced sovereign risk.

The Governor further said that the merchandise trade deficit widened during 2024 compared to the previous year, due to a larger expansion in import expenditure relative to export earnings.

“However, improvements in earnings from tourism and workers’ remittances contributed positively to the external current account during this period. Following an appreciation of 10.7% in 2024, the Sri Lanka rupee recorded a year-to-date depreciation of around 2% against the US dollar thus far in 2025,” he added.

The external debt restructuring process, except for a small portion, was completed successfully in December 2024, strengthening the external sector outlook of the country. The Gross Official Reserves (GOR) stood at USD 6.1billion at the end 2024. This includes the Bilateral Currency Swap facility from the People’s Bank of China, which was renewed for a further period of three years in December 2024. The current monetary policy stance is maintained In consideration of the current and expected macroeconomic developments, the Monetary Policy Board of the Central Bank of Sri Lanka decided to maintain the Overnight Policy Rate (OPR) at its current level of 8%.

The Board noted that the economic recovery is gaining momentum supported by the improving business confidence and market sentiments as well as the robust expansion of private sector credit, reflecting relaxed monetary conditions. While the ongoing period of deflation is likely to deepen in the immediate future due to supply side factors, a gradual convergence towards the inflation target is expected by the second half of 2025.

The Monetary Policy Board will continue to closely observe incoming data and assess risks to the inflation outlook, among others, and stand ready to take appropriate measures to maintain domestic price stability in the period ahead while supporting the economy to reach its potential, he noted.

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