Sri Lanka cuts interest rates to boost credit

Kris Canekeratne at LBR LBO Tech Conference

Dec 12, 2012 (LBO) – Sri Lanka has cut its main policy rate at which money injected to banks by 25 basis points to 9.50 percent to boost loans and the Central Bank said a credit ceiling would expire by the end of this month. “The Central Bank has been carefully monitoring the developments in the various sectors of the economy vis-à-vis the projections for each of these sectors,” the monetary authority said in its December policy statement.

“As per current information, a reasonable leeway has emerged between actual credit growth and the ceiling imposed by the Central Bank, indicating a further slowdown in credit utilisation.

“Economic activity has also experienced some moderation with adverse weather conditions and the uncertainty in the global economy exerting some pressure on growth in 2012.”

Credit to the credit however still remained strong as taxes from imports fell amid excessive spending. Data showed state entities such as the road development agencies has become a big bank borrower outside the main budget deficit over the past year.

The rate cut came as inflation spiked to the highest level since 2009.

The Central Bank said inflation rose to 9.5 percent in November 2012 from 8.9 percent in O