Sri Lanka’s central bank does not currently see a need for further interest rate increases this year after its unexpected 100 basis-point hike in May, Governor P. Nandalal Weerasinghe told Reuters. He said inflation is tracking broadly in line with the bank’s expectations, after policymakers tightened proactively because they anticipated a rise to 7%, and added that any future move to tighten or loosen policy would depend on whether price growth deviates from that path. The key inflation index rose 7.3% in July, the fastest increase in three years, driven by higher energy prices, while some analysts expect inflation to reach 8% in November. Weerasinghe said the full impact of the May increase would take 12 to 18 months to filter through the economy and that inflation should return to the central bank’s 5% target in the first half of next year. His remarks indicate policy may stay unchanged at 8.75% for at least the rest of the year, with the next rate decision due on September 30. Sri Lanka has been squeezed by higher crude costs linked to the U.S.-Israeli war on Iran that began on February 28, which disrupted key oil and liquefied natural gas supply routes. The government has raised fuel prices by more than 35%, introduced rationing and declared Wednesdays a public holiday. While the economy grew 5% in 2024 and 2025 after contracting 7.3% in the 2022 financial crisis, analysts have warned that defensive measures against global headwinds could weigh on 2026 growth. Weerasinghe said low inflation is essential for future growth and expects expansion in the 4%-5% range. The International Monetary Fund backed the May hike and agreed to release $695 million from its $2.9 billion program, while projecting Sri Lanka could still grow by 3% this year. The governor also said building foreign exchange reserves remains a priority, with a year-end goal of about $8 billion from roughly $6.6 billion now.