Sri Lanka rates unchanged; lower state borrowings to boost credit: Central Bank

Apr 22, 2014 (LBO) – Sri Lanka’s central bank held policy rates unchanged in April saying reduced central government and state enterprise borrowings has created conditions for private credit to pick up. Rice taxes have been relaxed ahead of the drought though prices are now up. Meanwhile traders have been slapped with price controls.

Sri Lanka’s inflation has been low with credit weak and excess liquidity being drained by the Central Bank, with some analysts saying inflation would be lower if the exchange rate was allowed to appreciate.

Credit

The government had borrowed 43.3 billion rupees from the banking system in the first two months of the year but overdrafts at state banks had been repaid with proceeds of a billion US dollar bond.

State energy enterprises had also repaid loans from state banks.

“Continued fiscal consolidation, together with the sovereign bond issuance that took place in April 2014, is expected to ease public sector’s reliance on bank financing in the coming months,” the Central Bank said.

“The resulting release of funds for private investments bolstered by sufficient market liquidity levels would provide the necessary stimulus to strengthen