Central Bank of Sri Lanka increased the overnight policy rate by 100 basis points to 8.75% on 26 May 2026, citing elevated inflation and a weakening rupee.
Inflation accelerated to 5.4% in April from 2.2% in March, and the central bank expects headline inflation to stay above the 5% target before stabilising.
The rate hike was larger than market expectations of a 25‑basis‑point increase, reflecting pressure from the U.S.–Israel war with Iran and associated energy price shock.
The government imposed a 40% increase in fuel prices, introduced rationing measures and declared public holidays on Wednesdays to manage the crisis.
The Sri Lankan rupee has depreciated nearly 9% since early March, though the central bank noted some recent easing in conditions.
Sri Lanka is still recovering from the 2022 financial crisis; it is supported by a $2.9 billion IMF programme, while foreign reserves continue to shrink.
