Though the economy was growing at above 7 percent this year, credit growth has been high with the government borrowing heavily from the Central Bank and adding liquidity to the system.
The resultant low interest rates and excess liquidity in turn has encouraged the private sector to also go on a borrowing binge.
Last October the Prime Lending Rate was 12 percent and the 12-month inflation during the period was 17.2 percent, and the moving average is 11.8 percent.
The PLR is now 13.4 percent and inflationary expectations were high.
"Your real borrowing cost is zero or negative," says Harsha de Silva, an economist who is a strong critic of expansionary policies which lead to inflation.
"Unless you don't have a brain, you will borrow," he points out.
Hot and Cold
Of late the Central Bank has been exhorting banks not to lend, and also curbed import credit, after a balance of payments crisis emerged.
Outspoken Hatton National Bank Chief Executive Rienzie Wijetilleke said the Central Bank had urged the banks to lend at one time and was now asking them to stop.
"There was a time when we were called upon by central bank, 'why are you not giving credit, why are you not giving credit' now we are told, 'why are you giving credit'. There should be some consistency in the thinking," he said.
But Central Bank Governor Nivard Cabraal was exuberant.
"Foreign direct investment has been increasing, notwithstanding various doomsday stories that we have been countering almost everyday; people who say that the economy is crashing, and something else is happening and the whole world is going to collapse," Cabraal said.
He said in the first eight months had brought in 340 million dollars in foreign direct investment and the stock market was booming.
"The Stock Exchange, the barometer that many of you are comfortable with has been breaking all records," Cabraal said.
"The performance of the Colombo Stock Exchange has also been up, the foreign purchases also showing very good sign, the indices are also up."
Meanwhile Central Bank's Assistant Governor H N Thenuwara who later took the floor to answer questions directed at the Central Bank Governor from the SLEA seminar participants said it was the duty of the bank to take away the 'punch bowl' just when the party was in full swing.
"Central banks are bad for parties; when the party is going well we remove all the punch bowl - the liquor and say 'ok now stop the party'," he said.
"And when the party's going to die we say, 'ok here's more liquor, drink it and start dancing again'".
Many market participants are puzzled and confused by the contradictory signals that continue to emerge from the Central Bank.
Critics have warned for many months that policy rates needed to be raised, and money printing halted, but the Central Bank has continued to give various excuses why interest rates should not be raised, thereby further feeding the credit boom.
"You artificially suppressed the interest rates which had to be adjusted about six months ago," Wijetilleke pointed out.
"That is the main reason for all this pressures. If the people were made to realize that the interests are going up, inflation is going up that the country is getting into difficulties, the people, the market would have responded. Whatever you say, the reason is the interest rate adjustment. I do not have to teach you, you are a better economist. You cannot do short term planning for the interest rate adjustments and you can't play politics with interest rates."
The Sri Lanka rupee fell to a record low 109.40 on the day of the seminar despite official intervention.
After denying that the rupee was overvalued for more than two years, Central Bank now says that the rate is market determined, and that it is a correction that will help exporters.Despite all this, Thenuwara also claimed that core inflation was coming down and would continue to go down in the future.