Sri Lanka credit expands faster than expected, policy rates steady

Aug 19, 2011 (LBO) – Sri Lanka’s policy interests rates are held steady at 7.00 percent to deposit excess money and 8.50 percent to inject fresh money, though credit growth was higher than expected at 34.4 percent in July, the central bank said. Credit disbursed to the private sector increased by 34.4 per cent on a year-on-year basis in June 2011,” the central bank said in its July monetary policy announcement.

“Such increase was higher than originally estimated, although this partly compensated the lower credit utilisation during the early months of last year.”

Broad money (M2b) ahd expanded by 20.7 percent from a year earlier in June, with demand from productive sector especially in former war torn north and eastern provinces.

The Colombo Consumer’s Price Index had risen to 7.5 percent in July from 7.1 percent in June, but the central bank said non-food prices may ease.

The central bank said “emerging uncertainties in advanced economies could decelerate global economic growth, thereby easing pressure on aggregate demand domestically,” allowing it to keep to monetary targets.

The central bank made no mention of emerging pressure on the rupee through credit growth, which analysts is indicative of rising demand pressure.