Sri Lanka central bank in bid to push credit

Mar 21, 2009 (LBO) – Sri Lanka’s central bank has asked banks to lend to the private sector amidst a peg defence exercise that has created a liquidity crunch, heavy state borrowing and banks that are wary of rising bad loans. The central bank said it had cut its de facto main policy signal rate, the unrestricted ‘penal’ discount window from 19.0 to 14.75 percent and its statutory reserve ratio by 300 basis points to 7.0 percent.

“However, the Central Bank notices with concern, that commercial banks have not yet responded sufficiently to the easing of the monetary policy stance..,” the monetary authority said in a statement.

“…notwithstanding the relaxation, the rate of growth in credit to the private sector has declined sharply to 6.4 per cent in January 2009 from 7.9 per cent at end-2008.

Sri Lanka’s government on the other hand has been appropriating most of the credit available.

In January total private sector credit outstanding to the private sector fell in absolute terms to 1,264.2 billion rupees from 1,278.5 billion rupees in December 2008, according to the latest official data.

Credit to government, including from the central bank rose to 625.7 billion rupees in January from 572.0 billion r