Sep 02, 2013 (LBO) – Sri Lanka’s commercial bank credit to private borrowers hit a 10 months high in July after a reserve ratio cut, while credit to state and state enterprises also surged, official data shows. Only the April fiscal data has so far been released. State cash flow gaps however can also occur due to the inability to roll-over debt.
Credit to private borrowers rose 28.4 billion rupees to 2,461, the highest since October 2012.
Rupee denominated credit from banks to the central government rose 60.1 billion rupees to 943.4 billion rupees with the cash released through a cut in the statutory reserve ratio cut.
Dollar denominated credit rose 17.3 billion rupees to 159.9 billion rupees
State owned enterprises borrowed another 29.3 billion rupees.
The cut in the SRR acts in the same way as printed money, generating surge in demand when the liquidity is loaned out as credit and spent. It will then result in either currency depreciation or losses of foreign reserves if the rupee is defended.
Total credit to the state from the banking system including the Central Bank was lower at 40 billion rupees because, the monetary authority sterilized a part of the liquidity released t