The Central Bank of Sri Lanka (CBSL) has released its third Market Operations Report (MOR) for 2025, detailing key developments in monetary policy, liquidity trends, interest rates, and foreign exchange management during the first half of the year.
The report aims to raise public awareness of CBSL’s ongoing efforts to stabilize the economy under the Flexible Inflation Targeting (FIT) framework and a flexible exchange rate regime.
A key highlight of the report is the persistent surplus liquidity in the domestic money market, a trend that has continued since April 2024.
As of end-June 2025, the liquidity surplus stood at Rs. 138.1 billion, down from Rs. 168.1 billion at end-2024, with an average surplus of Rs. 154.6 billion for the first six months of the year.
The surplus was primarily driven by the Central Bank’s aggressive foreign exchange purchases to strengthen the country’s external reserves, resulting in a net injection of Rs. 408.7 billion.
However, this surplus was partially offset by net foreign loan repayments (Rs. 231.9 billion), currency withdrawals (Rs. 106.4 billion), coupon payments on Treasury bonds (Rs. 95 billion), and bond maturities (Rs. 6.7 billion).
Due to improved liquidity conditions, the CBSL discontinued its reverse repo auctions from January 2025, opting instead to monitor liquidity and short-term interest rate trends more passively.
On the monetary policy front, CBSL continued its accommodative stance, reducing the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) in May 2025 by 25 basis points.
The new rates were set at 7.25% and 8.25%, respectively, forming a symmetric corridor around the reduced policy rate of 7.75%. This easing facilitated lower short-term market interest rates, with the Average Weighted Call Money Rate (AWCMR) aligning closely with the policy rate by the end of June.
Meanwhile, under the flexible exchange rate regime, the Sri Lankan rupee depreciated marginally by 2.46% against the US dollar over the first half of the year. CBSL intervened selectively in the domestic foreign exchange market to absorb volatility and accumulate reserves without distorting market functions.
In total, the Bank absorbed USD 1,077.4 million and injected USD 63.3 million, resulting in a net absorption of USD 1,014.1 million. Consequently, gross official reserves rose to USD 6,081.4 million by end-June.
To improve transparency and price discovery in the foreign exchange market, the Central Bank, in collaboration with Bloomberg, launched the “BMatch” platform. This real-time matching tool allows anonymous spot trading and enables CBSL to monitor market dynamics more efficiently.
Overall, the first half of 2025 saw a steady consolidation of monetary and foreign exchange conditions, with CBSL leveraging a surplus liquidity environment to scale down operations while focusing on stability and reserve accumulation.
