By Uditha Jayasinghe
COLOMBO (Reuters) -Sri Lanka’s central bank kept its policy interest rate unchanged on Wednesday as it awaited approval of the country’s budget and the latest loan review from the International Monetary Fund.
The Central Bank of Sri Lanka (CBSL) held the overnight policy rate at 7.75%, as forecast by all 13 economists in a Reuters poll, who cited stable inflation, healthy credit growth and steady economic expansion.
The monetary authority has held the rate steady since May as Sri Lanka continues its recovery from a 2022 financial crisis brought about by a collapse in foreign currency reserves.
“Leading economic indicators suggest a continuation of the growth momentum,” CBSL said in a statement. “Credit to the private sector has recorded a notable and broad-based expansion thus far in 2025, supported by the low interest rate environment.”
The central bank projects the economy will grow 4.5% this year, after expanding 5% last year.
It also said inflation is likely to accelerate more gradually than its earlier projection and reach its 5% target by the second half of 2026.
Milder inflation may prompt the central bank to consider a quarter-point rate cut early next year, analysts said.
“Holding the overnight policy rate seems to be driven by current credit growth momentum being sufficient to reach expected growth and inflation targets,” said Anjali Hewapathage, deputy head of macroeconomic research at Frontier Research.
“The question in the next one to two months is going to be what levels of demand are going to be reflected in inflation at similar levels of credit growth, since CBSL expects the momentum to continue.”
The IMF’s executive board is due to approve a $347 million tranche of the global lender’s $2.9 billion loan programme with Sri Lanka next month.
Sri Lanka’s budget, compiled with an emphasis on fiscal consolidation aligned with the IMF programme, is set for a final vote from lawmakers on December 5.
(Reporting by Uditha Jayasinghe; Editing by YP Rajesh and Kevin Buckland)
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