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Sri Lanka private credit up in August, SOE borrowings reach trillion rupees 2020

ECONOMYNEXT – Sri Lanka’s credit to private sector grew 78.3 billion rupees to 5,908.7 billion rupees, while loans to state enterprises also spiked to 40.3 billion rupees taking the total over a trillion rupees for the first time, official data showed.

Central Bank credit showed a decline of 15.4 billion rupees in August and the central bank had sold down its Treasury bill stock from 309 billion rupees on July 31 to 190 billion rupees by August 31.

Excess liquidity however went up from 147.4 billion rupees to 190 billion rupees, partly due dollar purchases.

The central bank is also printing money against contractor bills and is also giving re-finance to private banks for Coronavirus loans.

Sri Lanka’s external sector is also at risk from central bank intervention in Treasuries auctions in addition to re-finance loans, critics have warned.

A pick up in credit from new liquidity could put renewed pressure on the currency peg, analysts say or lead to spikes in domestic prices amid import controls.

Sri Lanka’s stocks have picked up amid excess liquidity and falling domestic interest rates from weak private credit up to July, despite more borrowings from the state.

In August credit to state enterprises grew 40.3 billion rupees, after growing 31.3 billion rupees in July, taking the outstanding SOE borrowings over a trillion rupees to 1,022.9 billion rupees.

Total credit from the banking system to the private and state sectors was 165.8 billion rupees down after a 199 billion rupees expansion from only state credit in July.

Up to August credit to government has topped a trillion rupees to record 1,014.1 billon rupees, and to state enterprises another 204.9 billion rupees.

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Private credit in the same period was only 110.6 billion rupees, though there was a surge of 120 billion rupees in March as the rupee collapsed under a so-called ‘flexible’ exchange rate and importers rushed to cover.

Private credit was negative in May, June and July. (Colombo/Sept28/2020)