Global oil prices: SL braces for price shock

Though Sri Lanka stands to be affected by the changes in global oil prices, due to the protracted conflict in the Middle East, its inflation targeting space has the ability to accommodate an anticipated price fluctuation, Sri Lanka Central Bank Governor Dr. Nandalal Weerasinghe said, speaking to Bloomberg on Saturday (7).

“From our point of view as an oil importing country, there will be a significant impact through high oil prices to inflation, as well as the balance of payments,” Dr. Weerasinghe said, referring to Sri Lanka’s heavy dependence on imported oil.

“Current inflation in the last month was 1.6%, compared to 5%. The target at which the Central Bank to deliver is at a significant good space, for us to be able to absorb that kind of price shock,” he said, noting that Sri Lanka’s headline inflation remains well below its 5% targeted rate.  

“We are well prepared compared to where we were in the past. For example in the crisis we had 70%. Still, it will have an adverse implication for a small economy like ours.”

Up until February, though Sri Lanka’s headline inflation entered into a positive territory in August of 2025, headline inflation continues to average 2.6% percentage points below the inflation target set by the CBSL. 

“So from the inflation point of view, we are in a good position. That’s why we are in a much better position,” Dr. Weerasinghe further noted.

Earlier this year, the CBSL decided to maintain the Overnight Policy Rate at 7.75%, with the intention to help guide inflation toward its 5% target.

Since the protraction of the conflict in the Middle East over the last week, the price of a barrel of oil surpassed $ 90 and has indicated the onset of global inflationary pressures, following reports of Kuwait cutting its output.

Brent crude oil saw a price increase of more than 9% on Friday (6), surpassing the highest price recorded in two years.

Source: The morning