Sri Lanka private credit soars to Rs158bn amid money printing
ECONOMYNEXT – Sri Lanka’s credit from commercial banks to private borrowers hit a never-before-seen high of 158.3 billion rupees doubling from previous high of 87.5 billion rupees hit in September, data showed, amid money printing and dollar inflows.
Credit to private borrowers rose 26.3 percent to 3,146 billion rupees in October from a year earlier.
Credit to the central government rose 32.2 billion rupees to 1,810 billion rupees, up 29.2 percent from a year earlier.
State enterprises borrowed another 5.5 billion rupees during October. State enterprise borrowing were up 31 percent to 535 billion rupees, from a year earlier.
Total credit given by the banking system to private and state borrowers rose to 196 billion rupees in October from an already high of 172.8 billion rupees.
In September and October the Central Bank rejected real bids for auctions of Treasury bills and printed money to repay them, injecting synthetic deposits for banks to give credit, drive imports and put pressure on the currency.
In September data shows that 79 billion rupees was printed. In October, outstanding central bank credit or printed money only went up 15.3 billion rupees, because Treasuries in its portfolio were sold down to sterilize proceeds of a bond sale.
Though it is not clear where most of the credit went, vehicle purchases and import credit may have played a part, analysts say.
By cutting policy rates in April and printing large volumes of money, the Central Bank has fired a consumption and import boom adding to salary increases and energy price cuts by the government which has severely damaged fiscal policy.
In December the Central Bank again did not raise policy rates, but hiked the statutory reserve ratio.
Sri Lanka’s rupee has collapsed from 131 to 144 to the US dollar during the year as money was printed in large volumes, but inflation has not picked up to the same pace as global commodity prices were weak.