Sri Lanka Keeps Policy Rate Unchanged at 8.75 Pc as Inflation Rises to 6.8 Pc

The Central Bank of Sri Lanka has kept its Overnight Policy Rate unchanged at 8.75% even as inflation rose to 6.8% in June, citing heightened global uncertainty following renewed tensions in West Asia and its impact on commodity prices.

In its latest Monetary Policy Board meeting on Tuesday, Sri Lanka's top bank said renewed tensions in West Asia had driven up global commodity prices, particularly petroleum prices.

"These developments are likely to dampen global economic prospects with potential spillovers to the domestic economy through multiple channels," the central bank said in a statement on Wednesday.

In June, inflation had risen to 6.8% and it is expected to remain above the target of 5% in the near term due to higher domestic energy and food prices, the statement said.  The bank said that core inflation is also expected to rise and remain around the headline inflation target. “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,” the statement said.  Gross Official Reserves stood at USD 6.45 billion at the end of June 2026, amid foreign debt service payments, the bank said, adding that the Sri Lankan Rupee has stabilised somewhat in recent weeks.

The bank had previously announced that the Sri Lankan Rupee had lost 7% against the US Dollar so far this year.

The apex bank said it will continue to monitor domestic and global developments for emerging risks and is ready to take appropriate measures to ensure that inflation stabilises around the 5% target.