The Central Bank is keeping its overnight policy rates unchanged, adopting a cautious stance amid uncertainty over the inflationary impact of energy prices due to the Middle East crisis.

‘We maintained the overnight policy rate at 7.75 percent, considering low inflation and a restrained approach on the fallout of the US-Israeli war on Iran, Central Bank Governor Dr Nandalal Weerasinghe said.

The Governor made these remarks yesterday at a press briefing held at the Central Bank head office in Colombo to announce the monthly monetary policy stance.

Dr Weerasinghe added: ‘Inflation is now expected to reach the Central Bank’s target of 5 percent in the second quarter of 2026, after Sri Lanka raised fuel prices by about 35 percent this month.

‘However, spillovers from the ongoing conflict could weigh on domestic economic activity in the period ahead should the conflict be prolonged.

‘The rates were steady since last May as the nation recovers from a 2022 financial crisis driven by a severe dollar shortage.

‘Supported by a US$ 2.9 billion programme with the IMF, Sri Lanka posted a strong economic recovery last year, growing by 5 percent and now targeting growth between 4 percent and 5 per cent in 2026.

‘What stands out is that they see space for inflation to rise because of energy prices but still stay contained.

‘From now to June, underlying economic momentum has the space to keep pace despite the disruption because domestic liquidity and credit has been quite substantial as well.

‘An IMF team will arrive in Colombo on Friday for the combined fifth and sixth reviews of the bailout.

‘Furthermore, Gross Official Reserves increased to US$ 7.3 billion at end February 2026 and the Central Bank purchased a substantial amount of foreign exchange from the market in the first two months of the year.

‘However, the ongoing conflict in the Middle East poses risks to Sri Lanka’s external sector outlook, particularly through energy, tourism, trade and remittance flows, although the overall magnitude of the impact remains uncertain.

‘While the Sri Lanka rupee remained relatively stable in early 2026, some depreciation pressures were observed following the onset of the Middle East conflict, similar to the exchange rates of regional peers.

‘Meanwhile, the Monetary Policy Board remains prepared to implement appropriate policy measures to ensure that inflation stabilizes around the target, while supporting the economy to reach its potential.’

By Hiran H Senewiratne

Dialog Television, Sri Lanka’s #1 Pay-TV service provider, has announced the latest upgrade to its smart entertainment lineup with the Dialog Play Mini, featuring seamless access to global streaming platforms including Netflix, Apple TV and YouTube, alongside the Dialog Play entertainment ecosystem for a unified viewing experience. Previously known as the ViU Mini, the device has now been reintroduced as the Dialog Play Mini, reflecting the evolution of Dialog’s digital entertainment platform under the Dialog Play brand.

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The need has not yet arisen to curb vehicle imports to Sri Lanka, Central Bank Governor Nandalal Weerasinghe said yesterday following the latest monetary policy review.

Responding to a question from the media during the Q&A session, Weerasinghe said the Central Bank of Sri Lanka was closely monitoring developments before considering any such measure.

He noted that foreign remittance inflows have not been affected so far despite the ongoing war in the Middle East. In fact, remittances have slightly increased as overseas Sri Lankans appear to be sending more money home amid the prevailing uncertainty.

However, tourism earnings have declined due to the current situation, while export data for the latest period are yet to be received.

“If consumption in Sri Lanka’s export markets is affected by changes in consumer behaviour in those countries, we could expect some decline in export earnings,” the Governor said.

Despite the uncertainties, he said Sri Lanka’s foreign reserves – currently exceeding USD 7 billion – provide a stronger buffer for the country’s balance of payments compared with the situation during the Sri Lankan economic crisis in 2022.

Dr. Weerasinghe said the government would also study the complexities of the evolving global situation and take appropriate action to minimise potential adverse impacts.

“Our monetary policy has been formulated based on several key assumption scenarios. No one can predict when the war will end and build a monetary model around that,” he said.

“What we have done instead is develop prudent scenario assessments and design monetary policy in a way that allows the economy to withstand potential adverse consequences in the best possible manner.”

The Governor also said that no businesses have so far requested loan moratoria due to hardships arising from global uncertainty. “Up to now we have not seen such concerns from enterprises,” Dr. Weerasinghe said, noting that the financial system has not yet experienced stress from companies seeking repayment relief.

By Sanath Nanayakkare