Sri Lanka's Central Bank outlines 2026 policy agenda for stability
The Central Bank of Sri Lanka has unveiled its policy agenda for 2026 and beyond, prioritizing price stability, financial system resilience, and sustained economic growth. Governor P Nandalal Weerasinghe highlighted the need for continued reforms amidst global uncertainties and climate vulnerabilities.
Sustaining growth and price stability
In 2025, the Central Bank of Sri Lanka further eased its accommodative monetary policy, leading to an overall reduction in market interest rates and notable expansion in private sector credit across key economic sectors.
This credit growth supported the sustained economic momentum.
Operating under a flexible inflation targeting framework, the Central Bank maintained inflation below its 5 percent target from the second quarter of 2024, submitting reports to Parliament on this deviation.
Prior to Cyclone Ditwah, inflation was projected to gradually rise in 2026, reaching the target by the second half of the year.
The economy is expected to grow by around 4-5 percent in 2026, demonstrating greater capacity to recover from devastation due to strengthened buffers across fiscal, external, and monetary sectors.
The Central Bank remains vigilant about supply-side shocks from extreme weather events, emphasizing the national need for disaster preparedness and long-term resilience building.
Building external buffers and refining policy tools
Sri Lanka's external sector faced significant challenges in 2025, compounded by higher-than-expected vehicle imports and false speculation, which exerted pressure on foreign exchange liquidity.
Nevertheless, the external current account registered a surplus for the third consecutive year, and Gross Official Reserves surpassed US dollars 6.8 billion by end 2025 – the highest since the crisis.
This was largely supported by US dollars 2.0 billion in net foreign exchange purchases by the Central Bank.
Monetary policy decision-making will continue to be data-driven, with ongoing improvements to modelling and forecasting capacity to capture post-crisis economic dynamics more accurately.
The Central Bank will enhance real-time economic surveillance through high-frequency data collection and sentiments, supported by novel technologies.
A review of the inflation target agreement with the Government is planned for this year, followed by stakeholder consultation and joint publication.
Resilience as a core necessity
The Central Bank of Sri Lanka's agenda highlights a critical commitment to stability and resilience amidst global and domestic shocks.
Its flexible, data-driven approach is essential for navigating climate vulnerabilities and economic uncertainties.
This strategy aims to foster sustained growth and build confidence in the economy's capacity to recover.