Headline inflation accelerated to 6.8 per cent year-on-year(YoY) in June 2026, mainly due to higher domestic energy and food prices, the Central Bank of Sri Lanka said in its monetary policy review. It expects headline inflation to remain above the 5 per cent target in the near term before gradually returning to the target level, while core inflation is also expected to rise and remain around the headline inflation target.
Sri Lanka held the Overnight Policy Rate at 8.75 per cent as Middle East tensions renewed concerns over fuel and commodity costs.
Inflation is expected to stay above the 5 per cent target in the near term.
Higher fuel imports have pressured the current account, although policy measures are expected to reduce import demand and credit growth.
On the external sector, the central bank said pressure from the Middle East conflict has eased somewhat, although the outlook remains uncertain due to renewed tensions. Since April 2026, the external current account has recorded a deficit, mainly because higher fuel import costs widened the merchandise trade deficit and tourism earnings slowed. Import demand, including demand for motor vehicles, is expected to reduce in response to recent policy measures, while workers’ remittances have remained strong so far in 2026.
Gross Official Reserves stood at $6.45 billion at the end of June 2026, amid foreign debt service payments, according to the central bank. The Sri Lanka rupee has stabilised somewhat in recent weeks, reflecting the impact of policy measures taken so far.
The central bank also said earlier monetary policy tightening in May 2026, together with other measures by the Government and the Central Bank, is expected to moderate credit growth and the build-up of demand pressures. It will continue to monitor domestic and global developments and stands ready to take appropriate measures to keep inflation around the 5 per cent target while supporting medium-term economic potential.
Fibre2Fashion News Desk (MS)
