ECONOMYNEXT – Sri Lanka’s private credit grew 76.6 billion rupees in July 2020, down from 83.4 billion rupees a month earlier, while central bank credit soared as foreign reserves were appropriated to repay a billion US dollar sovereign bonds and some other accounts, official data showed.
Up to July private credit has grown 490.6 billion rupees, up from 372.8 billion rupees for the full year in 2020, when imports fell and the economic activity slowed.
There was an increase of 8.8 billion rupees in state enterprise credit related to dollar borrowings.
Central bank credit to government soared 318 billion rupees in July as forex reserves were appropriated to repay a billion US dollar bond as well as some other accounts in the previous week.
Sri Lanka’s central bank issued dollars to the government against Treasury bills, which can be sold down through outright auctions to curtail credit and buy dollars as long as bond actions are not dysfunctional.
Sri Lanka has lost reserves as money was printed under so-called Modern Monetary Theory mostly through failed Treasuries auctions due to price controls on 12-month and other bonds.
Earlier this month, the central bank raised its overnight money printing rate to 6.0 percent from 5.50 percent but the one year de facto rate is still at below 6 percent, discouraging bond buyers and forcing more money to be printed. (Colombo/Aug28/2021)