Sri Lanka's Central Bank Raises Key Interest Rate to 8.75%

COLOMBO (News 1st); The Monetary Policy Board has raised the country’s key interest rate, the Overnight Policy Rate (OPR), by 1 percentage point to 8.75%, following its meeting held yesterday (25). This decision was taken after reviewing both local and global economic developments and how they are likely to affect Sri Lanka in the coming months.

Tensions in the Middle East have kept global oil prices high, which has hurt economies worldwide, including Sri Lanka. Because of these high oil prices, the government has had to sharply increase local energy prices, such as fuel and electricity, which was a major reason why inflation rose to 5.4% in April 2026 compared to a year earlier.

Although this recent increase in inflation is mainly due to higher costs (supply-side factors like oil and energy), the Central Bank notes that demand in the economy has also become stronger. This is seen in the continued growth in bank lending, more imports being financed through credit, and other early indicators showing that economic activity is picking up.

Because of this mix of higher costs and stronger demand, the Central Bank expects headline inflation to stay above its 5% target for some time before gradually easing and stabilising around that level. In the short term, expectations about future inflation have also moved up slightly, but policymakers still believe these expectations are under control over the medium term.