Sri Lanka's stock exchange declined in early Monday trading while the rupee strengthened, as inflation reached a three-year high and the government announced plans for oil and gas exploration licensing.
Sri Lanka's Colombo Stock Exchange declined in the opening hours of Monday trading, with the benchmark All Share Price Index dropping 0.6 percent to 21,403.34 points within the first hour of trading. The more liquid S&P SL20 index bucked the trend, rising 0.6 percent to 6,031.55. Market activity remained relatively subdued with turnover of 162 million rupees. Major stocks contributing to the decline included CTC, DFCC Bank, and Commercial Bank, each posting significant losses.
Meanwhile, the rupee showed resilience, strengthening to 328.90/329.00 against the US dollar compared to 329.40/50 on Friday. This modest appreciation comes against a backdrop of elevated inflation that reached 7.2 percent in the 12 months to July 2026, marking the highest level in over three years and exceeding the Central Bank's 7 percent upper inflation target. Non-food prices have risen more sharply at 9.2 percent annually. The Central Bank has attributed inflation pressures partly to energy costs and expects gradual decline toward year-end if oil prices stabilize around $90 per barrel.
On the policy front, Sri Lanka's Petroleum Development Authority announced that licensing details for offshore oil and gas exploration would be unveiled on Tuesday. The government aims to attract international energy companies to develop commercially viable natural gas deposits identified off the west coast, which officials say could enhance energy security and industrial growth. This represents a revival of exploration efforts following previous disappointments, including Cairn's departure from deepwater blocks in 2015.
The government has also approved interest-free loans of up to 25 million rupees for rice millers to purchase paddy at guaranteed prices, though opposition figures have criticized the pricing structure as inadequate for farming viability. An agricultural official acknowledged the Paddy Marketing Board lacks capacity to absorb the entire harvest at supported prices.
