Sri Lanka Central Bank Sees No Need For Further Rate Hikes This Year, Says Governor Dr. Nandalal

COLOMBO (News 1st) - Governor of the Central Bank of Sri Lanka Dr. Nandalal Weerasinghe told Reuters Sri Lanka's central bank sees no need for more interest rate increases this year after its massive unexpected hike in May, with inflation expected to peak around current levels before easing back towards the 5% target next year.

Sri Lanka's central bank surprised the markets with a 100 basis-point hike in May, its first increase in more than three years, to contain inflation fueled by the Iran ​war. 

Analysts said the move put at risk the fragile, IMF-backed recovery taking hold in the economy.

Governor Dr. Nandalal Weerasinghe said the May hike was a "proactive" ​move taken because the central bank expected inflation to rise to 7%, and current inflation was broadly on ⁠expected lines.

Sri Lanka's key inflation index climbed to 7.3% in July, marking the biggest rate of increase in three years, driven by rising energy prices. Some analysts expect the inflation rate to climb to 8% in November.

Like most energy-importing nations, Sri Lanka has been hit by high crude prices due to the U.S.-Israeli war on Iran that began on February 28 and which has choked key oil and liquefied natural gas supply routes, leading to a surge in global crude prices.

On the Country's economic growth, Sri Lanka's economy grew by 5% in 2024 and 2025, posting a strong recovery from a financial crisis in 2022 when the economy contracted by 7.3%.

Weerasinghe ⁠justified low inflation is a necessary condition for future growth, and said he expected the country's growth to be in the 4%-5% range.

The International Monetary Fund backed the central bank's rate hike and agreed to release $695 million of its $2.9 billion program, predicting Sri Lanka could still grow by 3% this ⁠year.

Maintaining a ​steady build-up in foreign exchange reserves remains a key priority for the governor as rising ​fuel import costs threaten to put fresh pressure on Sri Lanka's external accounts.