Kathmandu. Colombo: Sri Lanka’s central bank on Tuesday raised interest rates for the first time in more than three years amid high inflation and economic turmoil triggered by the Middle East war.

The central bank raised interest rates by 100 basis points to 8.75 per cent, saying the conflict had a negative impact on domestic prices and stability. The war in the Middle East, which began in late February, has effectively shut down the Strait of Hormuz, which imports essential goods including oil and gas, triggering energy prices and soaring global inflation.

Sri Lanka’s central bank said the uncertainty over heightened tensions in the Middle East was pushing up global oil prices and adversely affecting the domestic economy. Inflation in Sri Lanka more than doubled to 5.4 percent in April, higher than the central bank’s target of 5 percent for 2026.

Meanwhile, the value of the currency has depreciated more than 7 percent against the US dollar since the beginning of 2026, the bank said. Sri Lanka’s government has raised energy prices by more than a third and sharply raised fuel and electricity tariffs since the United States and Israel invaded Iran.

Sri Lanka is expected to receive around $700 million from the IMF later this week. This is the remaining tranche of the amount agreed in early 2023 in the wake of the economic crisis in Sri Lanka. Late last year, the cyclone killed 643 people in Sri Lanka and affected more than 10% of the population. According to the World Bank, the storm caused $4.1 billion in damage to Sri Lanka.