COLOMBO, March 25 : Sri Lanka's central bank kept its overnight policy rate unchanged at 7.75 percent, maintaining a cautious approach amid uncertainty over inflationary pressures from energy prices due to the Middle East crisis.
The Central Bank of Sri Lanka (CBSL) cited low inflation and a restrained outlook on the economic impact of the U.S.-Israeli conflict with Iran. Inflation is expected to reach the central bank's target of 5 percent in the second quarter of 2026, following a 35 percent fuel price increase this month.
"However, spillovers from the ongoing conflict could weigh on domestic economic activity in the period ahead, should the conflict be prolonged," the bank warned.
CBSL has held rates steady since May 2023 as the nation recovers from a 2022 financial crisis caused by a severe dollar shortage.
Supported by a $2.9 billion IMF program, Sri Lanka grew by 5 percent last year and aims for 4-5 percent growth in 2026. An IMF team will arrive in Colombo this week for the fifth and sixth reviews of the bailout.