LK Interest Rate Decision: November 2025 Analysis and Macro Outlook
The Central Bank of LK held the policy rate steady at 7.75% in November 2025, maintaining a cautious stance amid easing inflation and moderate growth. This marks the third consecutive hold after a series of cuts from 8.50% in mid-2024. Financial markets showed muted reaction, reflecting confidence in the central bank’s balanced approach. External risks from global commodity prices and geopolitical tensions remain key uncertainties. Forward guidance suggests a wait-and-see approach, with upside inflation risks balanced by fiscal consolidation efforts.
Table of Contents
The Central Bank of LK’s November 2025 Interest Rate Decision kept the benchmark policy rate unchanged at 7.75%, matching market expectations and the previous reading. This steady stance follows a downward trend from 8.50% in May 2024, reflecting a gradual easing cycle amid moderating inflation and stable growth. The decision underscores the bank’s cautious approach to balancing inflation control with growth support.
Drivers this month
- Inflation moderated to 5.10% YoY in October, down from 6.30% six months ago.
- GDP growth held steady at 3.20% YoY in Q3 2025, supported by domestic consumption.
- Core inflation remained sticky at 4.70%, prompting a wait-and-see policy.
Policy pulse
The 7.75% rate sits just above the estimated neutral rate of 7.50%, signaling a mildly restrictive stance. This aligns with the central bank’s inflation target range of 4%-6%, suggesting no immediate pressure to tighten or ease further.
Market lens
Immediate reaction: The LKR/USD exchange rate was stable within 0.10% post-announcement, while 2-year government bond yields edged down 5 basis points, reflecting market confidence in the central bank’s steady approach.
Core macroeconomic indicators provide context for the interest rate decision. Inflation has trended downward from a peak of 9.20% in early 2024 to 5.10% in October 2025, driven by easing food and energy prices. Meanwhile, GDP growth remains moderate but resilient, averaging 3.10% YoY over the past year.
Inflation and growth trends
- Headline inflation: 5.10% YoY (October 2025), down from 8.00% in November 2024.
- Core inflation: 4.70% YoY, showing slower decline compared to headline.
- GDP growth: 3.20% YoY in Q3 2025, consistent with 3.00% average over past 12 months.
Monetary policy & financial conditions
Monetary policy remains accommodative but cautious. The policy rate has been cut by 75 basis points since May 2024, with the last three meetings holding steady at 7.75%. Financial conditions have eased, with lending rates declining by 40 basis points on average, supporting credit growth of 6.50% YoY.
Fiscal policy & government budget
Fiscal consolidation efforts continue, with the government targeting a deficit reduction from 6.20% of GDP in 2024 to 5.00% in 2025. Revenue collection improved by 8% YoY, while expenditure growth slowed to 3%, aiding macro stability.
What This Chart Tells Us
Market lens
Immediate reaction: The LKR currency showed minimal volatility, while short-term bond yields declined modestly, reflecting market approval of the steady policy and balanced inflation outlook.
Looking ahead, the central bank’s policy trajectory will hinge on inflation dynamics, fiscal discipline, and external risks. Inflation is expected to moderate further but core inflation pressures remain. Fiscal consolidation is supportive but vulnerable to political shifts. External shocks, including commodity price volatility and geopolitical tensions, pose downside risks.
Bullish scenario (30% probability)
- Inflation falls below 4.50% by mid-2026, allowing rate cuts to 7.25%.
- Strong fiscal discipline supports macro stability.
- Global commodity prices stabilize, easing external pressures.
Base scenario (50% probability)
- Inflation remains within target range (4%-6%) through 2026.
- Policy rate holds steady at 7.75% to balance growth and inflation.
- Fiscal consolidation continues at moderate pace.
Bearish scenario (20% probability)
- Inflationary pressures resurge above 6%, prompting rate hikes to 8.00%.
- Fiscal slippage increases deficit, undermining confidence.
- Geopolitical shocks disrupt trade and commodity prices.
The November 2025 Interest Rate Decision for LK reflects a central bank navigating a complex macro environment. The steady 7.75% rate balances easing inflation with persistent core pressures and fiscal risks. Market reaction suggests confidence in this calibrated approach. However, vigilance is required as external shocks and fiscal policy execution remain key uncertainties. Investors and policymakers should monitor inflation trends, fiscal developments, and geopolitical risks closely to anticipate future monetary shifts.
Key Markets Likely to React to Interest Rate Decision
The LK interest rate decision influences several key markets, including currency, bonds, and equities. The LKR/USD forex pair typically reacts to changes in monetary policy expectations. Government bond yields adjust to shifts in interest rate outlooks, while select stocks in financial and export sectors respond to currency and credit conditions. Crypto markets show limited direct correlation but can reflect broader risk sentiment.
- LKRUSD – Directly impacted by interest rate changes and capital flows.
- CIB – A leading financial sector stock sensitive to credit conditions.
- EXPO – Export-oriented stock affected by currency fluctuations.
- SLB – Sensitive to domestic economic growth and interest rates.
- BTCUSD – Reflects global risk appetite, indirectly influenced by monetary policy.
Indicator vs. LKRUSD Since 2020
Since 2020, the LK policy rate and LKRUSD exchange rate have shown an inverse relationship. Periods of rate hikes correspond with LKR strengthening, while easing cycles coincide with depreciation. The 2024-2025 easing cycle saw the LKR weaken by approximately 7% against the USD, reflecting lower yields and improved inflation outlook. This dynamic highlights the critical role of monetary policy in currency valuation and external balance.
FAQs
- What was the latest Interest Rate Decision for LK?
- The Central Bank of LK held the policy rate steady at 7.75% in November 2025, matching market expectations and continuing a cautious easing trend.
- How does the Interest Rate Decision impact LK’s economy?
- The decision influences inflation control, credit conditions, and currency stability, balancing growth support with price stability in a complex macro environment.
- What are the key risks facing LK’s monetary policy?
- Upside inflation risks, fiscal slippage, and external shocks such as commodity price volatility and geopolitical tensions pose significant challenges.
Takeaway: LK’s steady 7.75% policy rate reflects a balanced approach amid easing inflation and stable growth, but vigilance on fiscal and external risks remains essential.
LKRUSD – Key forex pair reflecting interest rate and capital flow dynamics.
CIB – Financial sector stock sensitive to credit and interest rate changes.
EXPO – Export-oriented equity impacted by currency fluctuations.
SLB – Domestic growth and interest rate sensitive stock.
BTCUSD – Crypto asset reflecting global risk sentiment influenced by monetary policy.
The policy rate at 7.75% remains unchanged from last month and is below the 12-month average of 7.95%, reflecting a gradual easing trend. Inflation has declined steadily, with headline CPI dropping from 8.00% a year ago to 5.10% currently, while GDP growth has held steady around 3.10%.
Financial conditions have improved, with credit growth accelerating and bond yields softening slightly, indicating market confidence in the central bank’s steady approach.