Sri Lanka ready for monetary tightening if credit growth does not slow
ECONOMYNEXT – Sri Lanka stands ready for further monetary policy tightening if the rapid pace of credit growth does not slow down and inflationary pressures emerge along with another US rate hike, central bank governor Arjuna Mahendran said.
“Credit is still growing very fast, much higher than what we would like,” he told a news conference.
The central bank hopes to rein in credit growth with its decision Wednesday to raise commercial banks’ reserve ratios 150 basis points to 7.50 percent to reduce excess liquidity in the market while holding interest rates at record lows, he said.
“If we do not see any diminution in credit (in response to) the measures we announced last night, there would have to be monetary tightening,” Mahendran said.
The central bank would also watch for any build up in inflationary pressure and resort to further monetary policy tightening if there is a another rate hike by the US Federal reserve in March 2016, Mahendran said.
(Colombo/December 31, 2015)