Credit to state enterprises grew 9.4 billion rupees to 266.6 billion rupees in May up 107.7 percent from a year earlier.
Credit to the central government fell 3.7 billion rupees to 1,024.8 billion rupees driven by a reduction in central bank credit (printed money) to the state by 22.2 billion rupees to 329.5 billion rupees.
Up to April budget were seen to deteriorate. The total state credit in May however, were at a nine month low.
In April tens of billions of rupee were printed to pay double salaries to state workers as state revenues fell amid a slowing economy and a trade contraction, but most of it was repaid in May.
But in April actual cash demand by the economy also goes up due a traditional festival.The government however had borrowed 18.5 billion rupees from commercial banks in May, including a 2.9 billion rupee increase in dollar borrowings which could be due to currency depreciation.
Credit to government rose 44.7 percent to 1,024.8 billion rupees by May 2012, from a year earlier, while credit to state enterprises rose 107.7 percent.
Central Bank credit to government (printed money) rocketed 243 percent 329 billion rupees in May from a year earlier.
The Central Bank used printed money to sterilize foreign exchange sales in the course of defending a peg with the US dollar from around August 2011 as state loans taken to manipulate oil prices put pressure on the balance of payments.
The sterilized foreign exchange sales lit a fuse under Sri Lanka's banking system driving monthly private sector credit volumes from 20 to 40 billion rupee levels to 50 to 60 billion rupee levels, boosted by central bank credit.
Total credit from the banking system to state and private sector players peaked at 140 billion rupees in January and remained above 100 million US dollar until March 2012.
Credit was also boosted by a 10 billion rupee Central Bank profit transfer and a 17 billion rupee provisional advance in January.
Central Bank credit injections to the banking system began to ease after the rupee was partially floated in February resulting a gradual slowing down of total credit to more normal levels which match the deposits generated by the banking system.