“Though the Sri Lankan bourse is experiencing volatility due to the far-reaching impacts of the Middle East conflict, Sri Lanka’s sustained broader macroeconomic stability could lead to a reduction in downside risks of riskier assets looking ahead,” LYNEAR Wealth Management Head of Equities Asanka Herath said on Wednesday (25) speaking at a panel discussion.
“There can be incidence of volatility, but we are in a stable macro position to weather it, and therefore the risky assets, equities, real estate, private equities etc. should continue to see rerating over the next few years,” Herath said speaking at Almas Equities’ XChange Live 2026 forum hosted recently.
Elaborating on his position, Herath explained that Sri Lanka’s current macroeconomic position of stability is evinced by the stable interest rates that the Central Bank of Sri Lanka (CBSL) has been maintaining.
“The Sri Lankan macroeconomic position has probably been the strongest it has been for the last 40-50 years. From 1970 to today, if you look at the interest rates, our interest rates have not remained at these levels for more than one to one and half years. Now we are into our second year, and we think the rates will remain broadly at these levels, it can move up a bit, but broadly at these levels for at least another 2-3 years. That means our riskier assets, non-fixed incomes assets have to re-rate.”
The CBSL has been maintaining its overnight policy rate (OPR) at 7.75% since May 2025, when it had made a rate cut of -0.25% to support economic recovery. The rate has remained on hold to guide domestic inflation towards its 5% target, which will likely be met in the second quarter of 2026, due to the volatile global situation’s impact on energy prices.
“This low interest rate is not based on frivolous macroeconomic policy, it’s based on prudent macroeconomic policy, which has been implemented by law. The Central Bank Act prevents money printing; it makes it illegal. You have a Public Debt Act, which has put very specific restrictions on key fiscal metrics, that has never been the case for the last 40-50 years,” Herath commented on the legal backdrop to the stability maintained.
“That means if you slightly go above a ratio, it’s illegal, and any act of the executive in violation of the law will not be effective. Number three is, you have the Economic Transformation Act, all of these put together, makes us at Lynear believe that the Sri Lankan macroeconomic situation is fairly stable.”
He pointed out that this stability had been challenged in December of 2025, when Sri Lanka made an allocation of Rs. 500 billion from its treasury into recovery spending, in the aftermath of Cyclone Ditwah.
“That was put to test in December, overnight we had to spend an extra Rs. 500 billion, as part of the recovery from the cyclone. Even with that extra Rs. 500 billion, the Sri Lankan Government on a day-to-day basis will be cash positive. In spite of that spending, the Sri Lankan government’s cash balance will be positive, with close to a trillion rupees or so,” Herath referenced the government’s cash buffers, which had dipped below its lower limit in December and has since regained its Rs. 1 trillion buffer, according to officials.