Banks could increase growth to 23 percent with foreign borrowings. In 2011 commercial bank credit go business alone was around 35 percent.
"I think there is a common understanding that this challenge should be addressed," IMF mission chief Brian Aitken said.
"There was a strong policy response. We feel a more flexible exchange rate should be part of the package."
Sri Lanka's active policy rate shifted from 7.0 percent at which money is drained from the banking system to 8.
50 percent at which money is injected when liquidity dried up from forex market interventions.
With Friday's rate hike, policy rates have effectively risen 200 basis points from mid 2011.
Higher interests can reduce consumption, increase deposits available to banks to loan out and also cut total credit demand