CBSL tightens monetary policy in 1H-2026 to safeguard price stability
The Central Bank of Sri Lanka (CBSL) has announced that it tightened its monetary policy stance during the first half of 2026 to safeguard price stability while maintaining stability in the external sector amid heightened global uncertainties.
The observations were made in the Market Operations Report (MOR) for June 2026, released by the CBSL’s Market Operations Department on 31 July. The report provides an overview of the Central Bank’s monetary and foreign exchange operations carried out under the Flexible Inflation Targeting (FIT) framework, supported by the flexible exchange rate regime.
According to the report, the tightening of monetary policy, together with macroprudential and foreign exchange-related measures, helped strengthen external sector stability during the period.
The CBSL noted that surplus liquidity in the domestic money market continued, largely driven by the Central Bank’s net foreign exchange purchases, although intermittent declines were recorded. As a result of the tighter monetary policy stance, short-term interest rates moved upward during the first half of the year, reflecting an effective transmission of policy measures.
The report also highlighted that the Central Bank aligned its market operations with the prevailing monetary policy stance to manage liquidity, guide short-term interest rates and ensure orderly conditions in both the money and foreign exchange markets.
Meanwhile, the exchange rate came under depreciation pressure during the first half of 2026 due to heightened global uncertainties and increased demand for foreign exchange. The CBSL said its interventions in the domestic foreign exchange market were primarily aimed at curbing excessive exchange rate volatility while accumulating foreign reserves when market conditions permitted.
The report further noted that activity in the domestic interbank foreign exchange market moderated during the period amid external uncertainties before improving towards the end of the first half.
Among other key developments, the Central Bank said the growth of rupee deposits slowed during the period, while refinements to the Statutory Reserve Requirement framework strengthened reserve management and improved the effectiveness of monetary operations. Currency in circulation and reserve money increased during the first six months of the year, while the Central Bank’s holdings of Government securities declined marginally. The Market Operations Report also includes two feature articles on current market issues and a range of selected indicators on market operations and financial transactions.
Source: Daily News