The Central Bank of Sri Lanka left its benchmark interest rate unchanged at 7.75% at its March 2026 meeting, maintaining its current policy stance amid uncertainties stemming from the ongoing conflict in the Middle East. Headline inflation remained subdued at 1.6% in February, well below the 5% target, giving policymakers room to cushion the impact of higher domestic energy prices following a surge in global energy costs and trade disruptions.
Inflation is now expected to reach the 5% target in the second quarter of 2026—earlier than previously projected—and to stabilize around that level thereafter. Economic activity has proven resilient, with GDP expanding by 5.0% in 2025 despite disruptions caused by Cyclone Ditwah, and early indicators for 2026 point to a solid recovery. However, prolonged geopolitical tensions could still weigh on growth prospects.
The Sri Lankan rupee has remained broadly stable, though some depreciation pressures have emerged following the recent escalation of the conflict in the Middle East.
