ECONMYNEXT – Sri Lanka’s private credit grew 53.7 billion rupees in September 2019, with the central bank printing 23.9 billion rupees to target rates, though credit to government had declined during the month, official data show.
Total private credit grew to 5,679.7 billion rupees in September from 5,626 billion rupees a year earlier, which was up 6.1 percent from a year earlier.
Sri Lanka’s private credit growth slowed after a currency crisis in 2018, triggered by liquidity injections and rate cuts as the economy started to recover from the previous crisis.
Credit to government fell 29 billion rupees during September to 2,721.9 billion rupees, after picking up in the August. Credit to government was up 21 percent from a year earlier.
Credit to state enterprises also grew by 8.4 billion rupees 755.3 billion rupees but it is not clear whether the expansion was due to currency depreciation.
The rupee came under pressure after the central bank reversed monetary policy from around July 2019, abandoning a policy of mopping up inflows and printing money actively as short term rates picked up with spikes in private credit.
The rupee wiped out gains made during the prudent monetary policy earlier in the year amid liquidity injections and skewed convertibility undertakings which analysts have pointed out is a soft-peg with unusual instability.
After printing money and triggering credit or capital flight the central bank delays interventions until a ‘disorderly fall’ in the rupee. However no such ‘disorderly gain’ is allowed until dollars are bought.
In September the central bank had bought two million US dollars, with the rupee falling further, data show.
Since the soft-peg was set up in 1951, the rupee has been busted to 182 to the US dollar with around a 30 rupee fall in 2018. (Colombo/Nov13/2019)