ECONOMYNEXT – Sri Lanka’s central banks has maintained its policy rate at 7.75 percent in a November 2025 decision, a statement said saying it will help reflate the economy to 5 percent.
Sri Lanka’s rupee had depreciated steadily in 2025, amid record current account surpluses and reduction in budgets, helping push up prices of imported goods, amid strong credit growth.
“The recent depreciation pressure on the rupee has subsided with the improvement in foreign exchange liquidity,” the monetary policy statement said.
There have been warnings that the central bank is purchasing more dollars than is permitted by its deflationary policy which is largely limited to coupons paid into the agency on its bond portfolio which extinguishes rupee created through dollar purchases.
To buy more dollars and retain them without creating credit and imports, the central bank has to sell down its bond stock, analysts have said.
To avoid excessive discounting of step-down bonds, an easier option would be to strip coupons and sell the principle and coupons as deep discount bonds, analysts have said.
Sri Lanka’s prime lending rate have picked up marginally in recent weeks, raising some expectations that credit growth may continue without creating external crises as in the past.
The full statement is reproduced below:
The Monetary Policy Board, at its meeting held yesterday, decided to maintain the Overnight Policy Rate (OPR) at the current level of 7.75%. The Board arrived at this decision after carefully considering evolving developments and the outlook on both domestic and global fronts.
The Board is of the view that the current monetary policy stance will support steering inflation towards the target of 5%.
Headline inflation based on the Colombo Consumer Price Index (CCPI) continued to accelerate in October for the third consecutive month. Inflation is expected to rise more gradually than projected earlier and move towards the target by H2-2026. Core inflation is also expected to accelerate at a modest pace, as demand in the economy gradually strengthens. Medium-term inflation expectations remain well anchored around the inflation target.
Leading economic indicators suggest a continuation of the growth momentum. Credit to the private sector has recorded a notable and broad-based expansion thus far in 2025, supported by the low-interestrate environment.
This also reflects a recovery in economic activity as well as the realisation of pentup demand for vehicle imports. This credit momentum is likely to continue in the period ahead.
Imports have risen in recent months, contributing to a widening trade deficit. However, strong inflows from tourism and workers’ remittances have cushioned the impact on the external current account.
Gross Official Reserves were maintained above USD 6 billion thus far in 2025,1 supported by net foreign exchange purchases by the Central Bank. Expected additional inflows in December 2025 include receipts from the multilateral organisations.
The recent depreciation pressure on the rupee has subsided with the improvement in foreign exchange liquidity.
The Central Bank will continue to monitor and assess incoming data on evolving domestic and global economic conditions 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.