Sri Lanka central bank holds policy rate steady as IMF review looms

COLOMBO: Sri Lanka’s central bank kept its overnight policy rate unchanged on Wednesday, as it awaited the latest review on a $2.9 billion International Monetary Fund programme.

The Central Bank of Sri Lanka (CBSL) maintained the overnight policy rate at 7.75%, as unanimously forecast by a dozen economists in a Reuters poll.

The economists cited stable inflation, healthy credit growth and steady economic expansion as key reasons to hold the rate steady.

CBSL has kept the rate unchanged since May as the South Asian island nation recovers from a 2022 financial crisis that was driven by a severe dollar shortage.

The monetary authority said that the current monetary policy stance will support steering inflation towards the target of 5%.

Inflation was 2.1% at the end of 2025.

As demand in the economy strengthens, core inflation is expected to accelerate further going forward, the central bank added.

An IMF fact-finding mission is currently in Colombo to assess government policies ahead of approving a sixth tranche of the four-year debt bailout programme and is due to wrap up its visit on Wednesday.

Meeting IMF targets is critical to improving Sri Lanka’s credit rating after its default, enabling it to re-enter international financial markets to borrow and repay debts starting in 2028.

Sri Lanka’s tentative recovery from the unprecedented financial crisis was impacted by Cyclone Ditwah, which killed around 650 people and affected nearly 10% of the 22 million population, in late November.

Damage to houses, roads and other critical infrastructure has been estimated at $4.1 billion by the World Bank.

Despite economic activity slowing down after the cyclone, early indicators reflect greater resilience, the central bank said.