The Central Bank of Sri Lanka (CBSL) has announced its decision to maintain the Overnight Policy Rate (OPR) at 8.00%, following a comprehensive assessment of both domestic and global economic developments and associated risks.

Inflation Outlook

Recent data indicates that headline inflation has entered negative territory, a trend primarily attributed to significant reductions in electricity tariffs and fuel prices, as well as an appreciating rupee. This deflationary phase is anticipated to persist for several months, with projections suggesting a deeper decline than previously expected due to the recent substantial decrease in electricity tariffs.

Core inflation, which excludes volatile food and energy prices, is expected to experience a short-term decline before stabilising. The CBSL forecasts that overall inflation will return to positive figures and align with the target rate of 5% in the latter half of 2025.

Market Interest Rates and Economic Growth

Market interest rates have been adjusting in response to the policy easing measures previously implemented by the CBSL. This alignment is contributing to the ongoing momentum in economic growth. Sri Lanka’s economy has demonstrated a robust recovery, achieving a real GDP growth of 5% in 2024—the highest in seven years. This resurgence is supported by an International Monetary Fund (IMF) bailout and a comprehensive debt restructuring initiative.

Policy Rate Decision

The decision to maintain the OPR at 8.00% aligns with market expectations, given the current mild inflation and strengthening economic growth. The CBSL’s objective is to ensure that inflation stabilises at the medium-term target of 5% while sustaining the positive trajectory of economic expansion.

As Sri Lanka continues to navigate its post-crisis recovery, the CBSL remains committed to monitoring economic indicators closely and adjusting monetary policy tools as necessary to foster sustainable growth and maintain price stability.