Sri Lanka policy rates unchanged, credit still strong

Sri Lanka policy rates unchanged, credit still strong

ECONOMYENEXT – Sri Lanka’s central bank said it is keeping policy rate corridor unchanged at 6.00 percent and 7.5 percent while private credit still grew.

In November private credit grew 91 billion rupees, while state enterprises credit fell and the central government also did not borrow after a sovereign bond sale, the Central Bank said.

After raising the statutory reserve ratio by 1.5 percent to 7.5 percent, which economists and analysts said was an archaic tool that will make the banking system less efficient and was less effective than a rate hike in stabilizing the banking system, it was waiting for its effects to filter through.

Private credit has accelerated to 27.0 percent in November from 26.3 percent in October.

Sri Lanka’s central bank cut rate in April 2015, despite budget deteriorating and it is known for delaying rate hikes and generating credit bubbles and balance of payments crisis.

Fortunately however banks themselves had been raising deposit rates, which can reduce consumption and generate more resources for credit.

Emerging data indicates that the central bank had printed more money in January and foreign reserve losses had started to pick up.

The Central Bank said inflation fell to 2.8 percent in December from 3.1 percent in November.





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