The Central Bank limited full year loan growth of banks to 18 percent. They could go higher with foreign loans.
"Banks have still enough space to lend," Cabraal said. "There is no problem. We do not have to give confusing signals."
Analysts have said banks are now lending money that comes as new deposits (which curtails consumption) or repayments of old customers. Neither activity adds to aggregate demand or pressures the exchange rate peg.
Earlier in the year, before the currency was floated, banks also got printed money from the Central Bank, as the monetary authority sterilized foreign exchange sales injecting rupee reserves in to the banking system undermining Sri Lanka's dollar soft-peg.
After April new credit given by the banking system has come down to the 20-30 billion levels seen before sterilized foreign exchange sales began.But Cabraal said, if credit ceilings were not imposed, interest rates would have gone even higher. He declined to comment on interest rates as a monetary policy committee meeting was due next week.
Cabraal says there is just over three months remaining in the year and in the nine months many banks have only utilized much less than three quarters of their credit limit.
"From what I can see, all the policies are working as planned," Cabraal said. "We are satisfied with the progress, and anyway we will keep a close watch over the next few months."
With slowing credit and the end of sterilized foreign exchange sales, Sri Lanka's rupee peg has stabilized.
Analysts have said that the only reason the rupee did not appreciate in recent weeks was due to unsterilized foreign exchange purchases by the Central Bank.
A bout in inflation triggered largely by currency depreciation has also started to ease. Analysts say if the exchange rate is allowed to appreciate, inflation would ease further.
Sri Lanka's latest balance of payments crisis was triggered by a surge in loans taken by state enterprises to manipulate energy prices.
Energy price manipulation also deprives the state or tax revenues, requiring printed money to monetize debt, if interest rates are not allowed to go up. But as is customary in Sri Lanka, the usual suspect - car imports - have been blamed for the crisis by the authorities.
In February 2012, energy prices were jacked up, the exchange rate floated to end sterilized foreign exchange sales and interest rates allowed to go up.
Cabraal said the fiscal position was improving and authorities were confident of meeting a budget deficit target of 6.2 percent for 2012.
Last year however state enterprises ran credit financed losses of over 1.5 percent of gross domestic product, adding to the deficit of the central government.
Fiscal data in June shows an improvement in the budget gap, compared to the beginning of the year, indicating that at least in that month the Treasury ran a revenue surplus, though state enterprise borrowings were still going up.