Sri Lanka private credit weak in March
ECONOMYNEXT – Loans to the private borrowers from commercial bank in Sri Lanka picked was 23 billion rupees in March 2019, sharply below the 50 to 60 billion rupees seen in 2018, official data shows but has picked up from 7.6 billion rupees in February, official data shows.
Private credit was negative in January and expanded only 7.6 billion rupees in February, indicating a sharp downturn in economic activities after the collapse of the currency in the last quarter of 2018.
In March, private credit rose to 5,587 billion rupees, up 11.3 percent from a year earlier, slowing from 13.6 percent a year earlier, central bank data showed.
Weak credit has reduced economic activity and imports, allowing the currency to appreciate and the central bank has been a net buyer in forex markets in the first quarter of 2018.
Some of the liquidity from dollar conversions has also been mopped up, pushing up reserves.
As a result central bank credit to government which measures the printed money stock contracted to 503 billion rupees from 510.2 billion rupees in March from 510.2 billion rupees in February, hardening a soft-peg with the US dollar.
A steep fall in imports may reduce government revenues and is indicative of a downturn in economic output.
The rupee came under pressure from March 2018, when an economic recovery pushed-up private credit demand to 122 billion rupees and the central bank printed money by unwinding temporarily mopped up liquidity instead of allowing short term rates to move up.
Sri Lanka’s monetary instability comes from the central bank targeting a policy rate by printing money while operating convertibility undertakings (pegging) to collect reserves or target the exchange rate.
In March the government had repaid dollar denominated borrowings from banks, with the total stock falling to 376 billion rupees from 435 billion rupees a year earlier.
Dollar borrowings by state enterprises also fell to 266 billion rupees from 280 billion rupees a year earlier.
Total credit from the banking system to private borrowers and the government fell by 48 billion rupees, the first time total credit was negative since August 2016.
Credit is usually weak in Apri. In May following bombings on Easter Sunday, there had been outflows of funds from rupee bond markets. (Colombo/May13/2019)
Kithmina Hewage- Institute of Policy Studies