ECONOMYENXT – Sri Lanka has no reason to tighten monetary policy right now, though bank credit growth is strong, Central Bank Governor Arjuna Mahendran said.
"Right now there is no real reason to tighten monetary policy," Mahendran told a business forum organized by HSBC in Colombo.
"Bank credit has been growing quite fast on an annualized basis, but if you look at it on a month on month basis, it is not as steep as it appears."
He said bank credit has been strong but on a monthly basis credit it has not been high.
"We have to be mindful that inflation was turning positive because inflation has always been an issue in this country."
But Mahendran said inflation would hopefully be under control because there are several measures in the budget to strengthen the ‘supply side’ and there was also a benign international situation.
Sri Lanka was a small trading country in the world and the international picture had to be taken into account. India has been cutting rates.
"In that kind of backdrop it is very difficult for Sri Lanka to start raising interest rates," he said.
In India credit has been anaemic, with manufacturing credit negative and international trade especially imports are shrinking, pointing a slowdown. Deposits growth has also outpaced credit in India.
Mahendran however said that during the ousted Rajapaksa regime interest rates had been suppressed, generating credit bubbles, he said.
Sri Lanka also did not need an International Monetary Fund loan, but it would good to have them in line with Sri Lanka he said. Meanwhile the rupee fell to a new low of 142.80 on Monday. (Colombo/Nov21/2015)