Central bank keeps Overnight Policy Rate unchanged, says May’s monetary tightening is still working through the economy amid renewed external uncertainty
The Central Bank of Sri Lanka (CBSL) kept its Overnight Policy Rate (OPR) unchanged at 8.75 percent on Tuesday, holding monetary policy steady as it continues to assess the effects of tightening measures introduced in May.
In its policy statement, the central bank pointed to renewed geopolitical tensions as a risk factor weighing on the economic outlook. At the same time, it said the monetary tightening implemented in May, along with the resulting anchoring of inflation expectations, would continue to work its way through the economy in the months ahead — an indication that policymakers see the current rate stance as still taking effect rather than requiring further adjustment.
Activity in the secondary bond market was subdued following the announcement, with the yield curve largely unchanged on the day. Trading interest was concentrated at the shorter end of the curve. The 15 October 2028 maturity traded at 10.74 percent, while in the 2029 segment, the 15 June 2029 bond traded at 11.10 percent and the 15 September and 15 October 2029 maturities both traded higher, at 11.25 percent.
Separately, the Public Debt Management Office (PDMO) concluded its weekly Treasury bill auction, raising the full offered amount of LKR 140 billion. The 3-month and 6-month bills attracted strong demand, raising LKR 61.5 billion and LKR 60.1 billion respectively, both above their initial offer amounts. The 12-month bill raised LKR 18.4 billion, falling short of its LKR 30 billion offer.
Yields on the shorter-tenor bills eased at the auction, with the weighted average yield on the 3-month bill falling 18 basis points to 9.95 percent and the 6-month bill down 3 basis points to 10.24 percent. The 12-month bill’s yield held steady at 10.20 percent, unchanged from the prior auction.
On the currency front, the Sri Lankan rupee depreciated marginally against the US dollar, closing at LKR 336.35 compared to LKR 336.27 in the prior session. Meanwhile, overnight liquidity in the banking system expanded to LKR 175.20 billion, up from LKR 162.36 billion previously, pointing to ample short-term funding conditions in the banking sector.
Key Numbers
| Metric | Value |
|---|---|
| Overnight Policy Rate | 8.75% (unchanged) |
| 3M T-Bill Yield | 9.95% (-18 bps) |
| 6M T-Bill Yield | 10.24% (-3 bps) |
| 12M T-Bill Yield | 10.20% (unchanged) |
| T-Bill Auction Offer/Raised | LKR 140.0 Bn / LKR 140.0 Bn (fully subscribed) |
| USD/LKR | 336.35 (from 336.27) |
| Banking System Overnight Liquidity | LKR 175.20 Bn (from LKR 162.36 Bn) |
| 2028 Bond Yield (secondary) | 10.74% |
| 2029 Bond Yields (secondary) | 11.10% – 11.25% |
Business Impact
For businesses and borrowers, an unchanged policy rate signals continuity in the near-term cost of credit, with the central bank indicating it wants to see the effects of earlier tightening fully play out before considering further moves. The full subscription of the T-bill auction, particularly strong demand at the short end, suggests ample liquidity is available to fund government borrowing at slightly lower short-term rates — a mildly positive signal for near-term financing costs. The marginal rupee depreciation is unlikely to have material near-term impact on importers or exporters, though sustained geopolitical risk flagged by CBSL bears watching for businesses exposed to trade and currency volatility. The expansion in banking system liquidity may support continued availability of credit, though CBSL’s cautious tone suggests policymakers remain watchful of inflation risks going forward.
Source: Central Bank of Sri Lanka statistics and publicly available market information.