July 24, 2013 (LBO) – Sri Lanka is holding its policy interest rates at 9.00 percent to give money to banks with credit to state starting to ease, which will help private borrowing, the Central Bank said. Sri Lanka’s private borrowings and investment have been crowded out and investments by heavy government borrowing from banks and chronic large losses in state enterprises.
Sri Lanka’s has cut rates in 2013 amid fears of higher inflation and currency weakness and also cut a statutory reserve ratio in July, contributing to some exchange rate weakness and a one-off loss in foreign reserves because all released liquidity was not mopped up.
The Central Bank said in May, private credit rose to 18.3 billion rupees from 7.6 billion rupees in April while credit to state has fallen by 6.2 billion rupees.
State enterprises had part settled some loans and rains had allowed more hydro power generation.
“Further improvements in the public sector performance are expected to release funds from the banking sector to provide additional stimulus to increase private sector activity,” the Central Bank said in its July monetary policy review.
Inflation had fallen to 6.8 percent in June from 7.3 perce