Sri Lanka wants private credit to slow to 20-pct: CB Governor

ECONOMYNEXT – Sri Lanka would like to see private credit growth to slow to around 20 percent by the year-end from the current 28 percent, while a 12 to 13 percent growth in broad money was seen as desirable, top central bank officials said.

Coomaraswamy raised rates 50 basis points to 8.50 percent on July 27, after indicating last month that there was no immediate need for an immediate rate hike.

Coomaraswamy said he expected private credit to slow but in May, the 12-month growth remained at 28 percent, down from 28.1 percent a month earlier and indications in June was also for strong private credit growth.

Government revenues had also improved, despite a suspension of a tax hike by courts. Coomaraswamy said the suspension created uncertainty over whether a planned 2.0 percent contraction in the budget deficit (to 5.4 percent for gross domestic product) would be reachable.

However state enterprises are now paying back debt with the Ceylon Petroleum Corporation making repayments, officials said.

Rates were hiked to ‘lean against the wind’ from a possible fiscal slippage, he said.

Banks are now raising deposits paying as much as 11 to 12 percent for one year deposits and if state enterprises repay debt and government reduces crowding out, Sri Lanka’s banks could give more credit.

Sri Lanka’s broad money defined as M2 grew 18 percent in the 12-months to May (down from 18.4 percent in April), and M2b which also includes dollar credit grew 18.2 percent in May (down from 18.9 percent).

A July monetary policy statement said monetary expansion was above ‘desired levels’.

Deputy Governor Nandalal Weerasinghe said the central bank wanted 12 to 13 percent growth in broad money.

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Inflation in the 12-months to July slowed to 5.5 percent, from 6.0 percent in June. (Colombo/July29/2016)
 

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