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Sri Lanka domestic credit shrinks in August, forex reserves up

ECONOMYNEXT – Sri Lanka’s credit from commercial banks contracted Rs79 billion in August 2016, with credit to the government and state enterprises shrinking, allowing forex reserves to go up, official data showed.

Total credit to the government contracted Rs94.1 billion to Rs1.937 billion in August and state enterprise also repaid Rs30 billion to banks, data from the Central Bank showed.

The central bank had sterilised dollar purchases and contracted Central Bank credit to the government by Rs59 billion during the month, allowing forex reserves to improve.

When liquidity from Central Bank forex purchases are mopped up, they cannot be disbursed by banks and credit, which turns into imports.

Private credit in August also eased to Rs45 billion from Rs62.8 billion a month earlier.

Sri Lanka’s forex reserves rose from $6.4 billion to $6.6 billion in August.

The Central Bank bought $133 million more than it sold in August from commercial banks. Purchases of dollars from the Treasury is not included in the number.

In July also, the Central Bank bought $150 million more than it sold. Later data showed that, in October, foreign investors who bought bonds up to September, began to sell, putting pressure back on the credit system.

Sri Lanka also reports both Central Bank reserves and fiscal reserves together.  (Colombo/Nov21/2016)

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