Sri Lanka to keep credit ceilings in place, policies working: CB Governor

Sept 14, 2012 (LBO) – Sri Lanka’s will keep credit ceilings in place as banks still have enough space to lend, and policies taken to fix balance of payments pressure is bringing results, Central Bank Governor Nivard Cabraal said. Governor Cabraal says measures taken earlier in the year, including credit ceilings are now taking effect and there is no reason to change direction.

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 be