Lanka Indian Oil Corporation said it would follow state mandated pricing.
Kerosene would be raised by 35 rupees to 106 rupees from mid-night Saturday. Premium 95-octane petrol would go up to 167 rupees a litre.
Sri Lanka's rupee fell from 110 rupees to the US dollar in the spot market to 115.30 over the last few months partly due to credit demand from energy utilities including the state power distributor which were running losses.
Diesel is currently the most expensive refined fuel in international markets having overtaken, kerosene, which is usually the highest priced distillate.
According to Central Bank data, refined Diesel was 132.94 dollars a barrel (95.79 rupees a litre) kerosene was 131.6 US dollars a barrel (94.80 rupees a litre) and petrol was 125.3 dollars a barrel (91.01 rupees a litre).
Petrol would go up by 8.75 percent and diesel 36 percent from Saturday, partially correcting current mis-pricing. Fuel mis-pricing has also encouraged the import of diesel guzzling large luxury vehicles.
Petrol is heavily overpriced with a 25 rupees-a-litre excise tax slapped on each litre by the state. Diesel is only charged a 2.50 rupees a litre tax.
Diesel may be now priced just around cost when freight, port levies and taxes are added, an industry official said.Sri Lanka does not have an automatic fuel pricing formula that can prevent economic imbalances from building up and threatening the country's currency peg and inflation.
India is already moving towards formula based pricing in what the government calls 'de-control'.
Sri Lanka devised a fuel pricing formula, two balance of payments crises ago around 2000, but it was abandoned in late 2004 after it helped strengthen the exchange rate and lower inflation to near zero due to pressure from Janatha Vimukthi Peramuna, a Marxist party.
In the current balance of payments crisis Sri Lanka has lost about a quarter of its foreign reserves.
