COLOMBO : The Monetary Policy Board decided to maintain the Overnight Policy Rate (OPR) at the current level of 7.75% at its meeting held yesterday., According to a press release issued on September 24 by the Central Bank of Sri Lanka.
The Board arrived at this decision after carefully consideringboth domestic and global developments. The Board is of the view that the current monetary policystance will support steering inflation towards the target of 5%.
Headline inflation based on the Colombo Consumer Price Index (CCPI) turned positive in August 2025,
ending eleven months of deflation. Inflation is projected to gradually increase towards the target of 5%
by mid-2026. Reflecting strengthening domestic demand, core inflation is also expected to pickup, and
stabilise thereafter around the headline inflation target. Medium term inflation expectations remain
anchored around the inflation target.
The economy is estimated to have grown by 4.8% in H1-2025. Leading indicators reflect a continuation
of this momentum into Q3-2025. Credit to the private sector recorded a notable and broad-based
expansion thus far in 2025. This expansion has been supported by the low-interest-rate environment and
the recovery in economic activity. The continued expansion in private sector credit is expected to further
support domestic economic activity in the period ahead.
The external sector remained resilient, supported by improved inflows from tourism and workers’
remittances, despite a widening trade deficit. Continued net foreign exchange purchases by the Central
Bank have helped maintain gross official reserves at US dollars 6.2 billion by end August, amidst debt
service payments. The Sri Lanka rupee remains broadly stable. All three major rating agencies have
now raised Sri Lanka’s sovereign ratings, confirming the improved credit standing. Meanwhile, global
financial conditions have eased, although geopolitical uncertainties remain.
The Board will continue to monitor and assess incoming data on developments on the domestic and
global fronts and emerging risks. The Board remains prepared to implement appropriate policy measures
to ensure that inflation stabilises around the target, while supporting the economy to reach its potential.
The release of the next regular statement on the monetary policy review will be on 26 November 2025.
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Annexure 01:
Headline Inflation Projections* (Quarterly, CCPI, Y-o-Y, %)
Based on the Projections during the September 2025 Monetary Policy Round
50% CI 70% CI 90% CI
Realised Inflation Inflation Target **(5%)
Source: Central Bank Staff Projections
** The inflation target (5%) was agreed under the Monetary Policy Framework Agreement (MPFA) signed between
the Central Bank and the Minister of Finance in October 2023.
- Realised data in the fan chart are based on the CCPI (2021=100, seasonally adjusted). Projections are based on all available data at the forecast round
in September 2025.
Note: The fan chart illustrates the uncertainty surrounding the baseline projection path using confidence bands of gradually fading colours. The confidence
intervals (CI) shown on the chart indicate the ranges of values within which inflation may fluctuate over the medium term. For example, the thick green
shaded area represents the 50% confidence interval, implying that there is a 50% probability that the actual inflation outcome will be within this interval.
The confidence bands show the increasing uncertainty in forecasting inflation over a longer horizon.
Note: A forecast is neither a promise nor a commitment.
The projections reflect the available data, assumptions, and judgements made at the forecast round in September 2025.
They are conditional on the forecasts of global energy and food prices, the expected growth path of Sri Lanka’s major
trading partners, the anticipated fiscal path of the Government, and global financial conditions implied by the Fed
Funds rate. Further, the projections are conditional on the model-consistent interest rate path and the resulting
macroeconomic responses. Any notable changes in these assumptions could lead to the realised inflation path
deviating from the projected path.
There are upside risks to the realisation of inflation projections stemming from factors such as the possible
development of higher-than-anticipated demand pressures amidst strong credit growth; possible increases in global
commodity prices amidst geopolitical tensions and supply disruptions; and any possibility of adverse weather
conditions affecting agriculture and energy sectors, thereby exerting upward pressure on food and energy inflation.
Meanwhile, downside risks to the realisation of inflation projections include possible lower-than-anticipated volatile
food inflation amidst a healthy harvest; and the possibility of a slower increase in energy and transport sector inflation
due to lower-than-expected fuel costs.
Data Annexure is accessible at https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/mpr05_
