2026.05.2602:12:53UTC+00Sri Lanka Hikes Key Rate by 100 bps

At its May 2026 meeting, the Central Bank of Sri Lanka raised its benchmark interest rate by 100 basis points to 8.75%, the highest level since February 2024. The move comes amid mounting inflationary and external pressures linked to the escalating conflict in the Middle East.

Headline inflation accelerated to 5.4% in April, driven primarily by sharp increases in domestic energy prices following persistently elevated global oil costs. The central bank also highlighted signs of stronger domestic demand, underpinned by continued private sector credit growth, rising imports, and a further pickup in overall economic activity. Policymakers expect inflation to remain above the 5% target in the near term before gradually easing.

At the same time, the external sector has come under renewed strain from higher fuel import bills, softer tourism receipts, and speculative activity in financial markets. Nonetheless, worker remittances have stayed resilient. The Sri Lankan rupee has faced depreciation pressures in recent weeks, while official foreign exchange reserves stood at USD 6.8 billion at end-April.