The Central Bank of Sri Lanka has increased the Overnight Policy Rate (OPR) by 100 basis points to 8.75%, citing rising inflationary pressures, global economic uncertainties, and external sector vulnerabilities linked to escalating tensions in the Middle East.

The decision was taken by the Monetary Policy Board at its meeting held yesterday following an assessment of domestic and global economic developments. The Central Bank noted that elevated global commodity prices, particularly petroleum prices, have continued to exert pressure on economies worldwide, including Sri Lanka.

The recent surge in global oil prices has led to sharp upward adjustments in domestic energy prices, contributing significantly to Sri Lanka’s inflation rate of 5.4% year-on-year in April 2026. Although the increase in inflation is largely supply-driven, the Central Bank observed that domestic demand conditions have also strengthened due to continued credit expansion, rising imports supported by credit growth, and improving economic activity indicators.

According to the Bank, headline inflation is expected to remain above the targeted 5% level in the near term before gradually easing and stabilising over the medium term. Short-term inflation expectations have also increased moderately.

The Central Bank further highlighted growing pressures on the external sector stemming from the Middle East conflict and speculative market activity. Sri Lanka’s Gross Official Reserves stood at US$ 6.8 billion by the end of April 2026 despite continued foreign debt servicing obligations.

However, the Bank expressed confidence that anticipated multilateral inflows, resilient workers’ remittances, and easing geopolitical tensions would help stabilise external sector conditions in the period ahead.