“We are now seeing a stabilising situation, partly due to the monetary policy measures we had in May and also some of the measures brought in by the government to curtail imports,” Weerasinghe said in an interview in Sydney, Australia, where he is part of a Sri Lankan delegation visiting to attract investors to the Colombo Stock Exchange.

In May the central bank hiked its benchmark rate by a full percentage point to cool credit demand as surging global energy prices stoked inflation and dragged down the local currency. It followed that by keeping the overnight rate on hold in July, even as prices continued to accelerate as it attempts to balance stabilising prices and keeping the economy growing.

“If oil prices remain around US$80 a barrel through towards the end of this year, then we can manage the situation. If there are any surprises then obviously we will have a challenge,” Weerasinghe said.

Even with the protracted conflict between the US and Iran clouding the global outlook, the comments indicate that the Central Bank of Sri Lanka is confident tighter monetary conditions and higher prices “won’t be very adverse” on growth, according to Weerasinghe, who said he expected growth to cool in the second half of this year to around 4% to 5%.

Sri Lanka’s economy has been buffeted by shocks in recent years, with an unprecedented sovereign default in 2022 forcing the government to enter an International Monetary Fund-supported loan programme, a cyclone late last year and now the effects of the war. The country is expected to “fully complete” its four-year IMF facility by the second half of 2027, with the next review due around November or December of this year, Weerasinghe said. 

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