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Sri Lanka private credit up, state credit surge in September 2020

ECONOMYNEXT – Sri Lanka’s private credit grew by 87.4 billion rupees in September 2020, expanding for the second month in a row, shortly before a Coronavirus outbreak hit, and credit to government surged, official data showed.

Credit to government surged 199 billion rupees, the highest since 269.9 billion rupees seen in March 2020. Some of the credit to government is paper, where bond are rolled over with interest.

Credit to state enterprises fell 4.6 billion rupees to 1,018.3 billion rupees.

Central bank credit to government (printed money) grew by 43.1 billion rupees. The central bank has also been injecting cash through re-finance loans.

Private credit grew to 5,996.1 billion rupees up 5.8 percent from a year earlier, after expanding 78.4 billion rupees a month earlier, ending three months of negative credit.

About a third of the loan books of banks are under moratorium, the effect of which is not clear.

Sri Lanka has severe import controls in place though domestic demand is weak. However asset prices have risen as excess liquidity in money markets remained high and interest rates low.

Total credit from the banking system was 281.9 billion rupees, the highest since March 2020.

The rupee was stable in September 2020, with the central bank buying 56 million dollars to peg the rupees and stops its appreciation and selling 1.25 to maintain it.

Net dollar purchases by the central bank expands reserve money pushes up liquidity. Colombo/Nov09/2020)

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