The Central Bank of Sri Lanka (CBSL) yesterday hiked its benchmark interest rate for short-term borrowing by 100 basis points to 8.75 per cent. It raised interest rates for the first time in over three years.

The Middle East conflict is affecting domestic prices and stability, it said.

"The uncertainties arising from the heightened tensions in the Middle East have prompted global commodity prices, particularly petroleum, to remain high, adversely affecting the global as well as the domestic economy," the bank said in a release.

“While near term pressures on the external sector were expected amid global headwinds stemming from the Middle East conflict, such pressures were seen to have amplified in recent weeks due to speculative activity,” it said.

Inflation in Sri Lanka more than doubled to 5.4 per cent year on year (YoY) in April, exceeding the bank's 2026 target of 5 per cent.

The Sri Lankan rupee has depreciated by more than 7 per cent against the US dollar since the year began beginning of 2026, the bank said.

The government has raised energy prices by more than a third, rationed fuel and sharply hiked electricity tariffs since the Iran war began.

Fibre2Fashion News Desk (DS)