Sri Lanka central bank rules out further rate hikes, stays alert

Sri Lanka’s central bank will hold its benchmark interest rate steady, with no further hikes required at this time, Governor P. Nandalal Weerasinghe said on Wednesday.

The Monetary Policy Board has maintained its hawkish stance but sees current policy as sufficiently restrictive to anchor inflation expectations, Weerasinghe told Reuters in an interview. The decision follows a series of aggressive rate increases implemented since 2022 to curb soaring consumer prices amid economic instability.

While the governor acknowledged progress in reducing inflation from historic highs, he cautioned that risks remain elevated. Food price volatility and potential supply-side disruptions could reignite price pressures, necessitating a continued watchful approach. The central bank will assess incoming data to determine if additional measures are warranted, Weerasinghe stated.

Sri Lanka’s inflation rate has eased from a peak of over 70% in 2022 to around 5% in recent months, supported by tighter monetary policy and a stabilization of the currency. The central bank’s policy rate currently stands at 8.5%, a level deemed adequate to balance growth and inflation objectives.

Analysts note that the pause reflects confidence in the disinflationary trend but also underscores the fragility of the recovery. External sector challenges, including debt servicing obligations and import constraints, continue to pose risks to macroeconomic stability. The central bank’s vigilance will be critical in navigating these uncertainties without undermining the fragile rebound in economic activity.

The governor’s remarks come as Sri Lanka seeks to restore investor confidence and secure funding from international creditors to restructure its debt burden. Policy continuity and inflation control remain central to these efforts.