Sri Lanka holds rates as growth quickens, tariff risks loom

The decision signals a wait-and-see approach by the bank as the impact of US President Donald Trump’s 20% tariffs on Sri Lanka unfolds

Sri Lanka’s central bank left its benchmark rate unchanged for a second straight meeting, aiming to rein in demand as growth strengthens and inflation edges closer to target.

The Central Bank of Sri Lanka maintained its overnight policy rate at 7.75% on Wednesday. Eight of 11 economists surveyed by Bloomberg expected no change, while the rest forecast a quarter-point cut.

“The continued expansion in private sector credit is expected to further support domestic economic activity in the period ahead,” the bank said in a statement. “Global financial conditions have eased, although geopolitical uncertainties remain,” it said.

The decision signals a wait-and-see approach by the bank as the impact of US President Donald Trump’s 20% tariffs on Sri Lanka unfolds. While Sri Lanka’s gross domestic product grew faster than expected last quarter, the levies would hit key export sectors such as apparel and rubber products, which make up about 10% of the economy.

“The Board is of the view that the current monetary policy stance will support steering inflation towards the target of 5%,” it said.

Governor Nandalal Weerasinghe said last month that the monetary authority could reduce rates further, but is acting with caution amid external headwinds.

Sri Lanka’s economy contracted sharply in 2022 and 2023, hit by a sovereign debt default. Since then, loans from the International Monetary Fund and restructuring efforts have helped in maintaining stability. The upcoming budget, which is scheduled to be presented on Nov. 7, will unveil policies to boost investments.

The island nation ended its deflationary spell in August, with inflation now expected to gather pace on stronger demand and rising food prices.

“The Board remains prepared to implement appropriate policy measures to ensure that inflation stabilizes around the target, while supporting the economy to reach its potential,” the bank said.