ECONOMYNEXT – Sri Lanka’s credit to private borrowers from commercial banks turned sharply negative to 43.4 billion rupees during April 2019 amid Easter Sunday suicide blasts and an earlier collapse of a soft-peg, official data show.
Private credit fell to 5,544 billion rupees in April 2019, from 5,577 billion rupees in March, which was up 9.9 percent from a year earlier.
Credit to private borrowers turned negative for the first time in four years in January 2019, falling 4.3 billion rupees as the credit system recovered from a collapse of the currency from 153 to 182 to the US dollar.
In most years, April is the weakest month for private credit growth as there is long holiday for a traditional New Year and businesses try to borrow and build up stocks in March. But in 2019, Easter Sunday suicide blasts added a confidence shock.
Slower credit helps the currency to appreciate, if the central bank allows it as money is usually not printed to keep rates down when private credit is weak. The central bank is usually able to buy dollars and mop up forex reserves.
However liquidity created by purchases of dollars, especially from the Treaury, which are not mopped up, may prevent an appreciation.
In the first four months of the year total private credit fell by 17.10 billion rupees, compared to a growth of 222.6 billion rupees in 2018.
In 2018 March credit was re-financed with 36 billion rupees of printed money, and April by 29.9 billion rupees, bringing the currency under pressure.
In 2019 the central bank had reduced printed money.
In April credit to government from banks fell 18.9 billion rupees to 2,593.9 billion rupees, but state enterprises borrowed 23.1 billion rupees, taking the total to 725.7 billion rupees. (Colombo/June03/2019)