Sri Lanka will not rule out rate hike if high credit growth continues: CB Governor

ECONOMYNEXT – Sri Lanka will not rule out a rate hike if high credit growth continues, but measures already taken including a fall in the rupee is expected to keep the economy in balance, Central bank Governor Arjuna Mahendran said.

Mahendran told reporters in Colombo said economic growth estimated at 6.7 percent in the second quarter and "there was sufficient economic momentum".

He said credit growth was over 15 percent and under Sri Lanka’s monetary law a report has been sent to the Finance Ministry, he said.

But Mahendran said he expected ‘macro-prudential measures’ already imposed will bring results and he doubted whether a rate hike would be needed.

"I won’t rule out a rate hike if credit growth continues even faster," he said.

Rates also should not fall too low since foreign investors in bond had to be taken into account, he said.

The rupee was now market determined and a recent fall in the rupee will increase export competitiveness, Mahendran said.

Lenders were asked to finance only 70 percent of loans of cars, which were being imported in large numbers, taking away any advantage from a reduction in oil prices, he said.

Uncertainty in global market had made many currencies volatile and the situation may continue until the US hikes rates, he said.

An eventual hike in US interest rates need not necessarily signal a domestic hike he said, if credit, inflation and balance of payments are stable. v He said core inflation has been rising, but headline inflation was low. (Colombo/Sept28/2015 – Update II)

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