The decision comes amid heightened uncertainty stemming from ongoing tensions in the Middle East, which could have potential spillover effects on the Sri Lankan economy.
The Board noted that inflation remains subdued, recording 1.6% year-on-year in February 2026—well below the target level of 5%. This relatively low inflation provides room to absorb the impact of rising energy prices and their secondary effects.
According to the Bank, inflation is now expected to reach the 5% target by the second quarter of 2026, earlier than previously projected, and is likely to stabilize around that level thereafter.
On the growth front, Sri Lanka’s economy demonstrated resilience, recording a strong real GDP growth of 5.0% in 2025 despite disruptions caused by Cyclone Ditwah toward the end of the year.
Early indicators for 2026 suggest a robust recovery following the cyclone. However, the Central Bank cautioned that prolonged global conflict could dampen economic momentum in the months ahead.
