Sri Lanka upgrades growth forecast for 2010

Sept 23, 2010 (LBO) – Sri Lanka has upgraded its growth forecast to between 7.5 to 8.0 percent for 2010, on a better than expected second quarter economic expansion and stronger credit flows, Central Bank governor Nivard Cabraal said. The central bank which cut policy rates for two months in a row held rates in September at 9.0 percent for cash it injects and 7.5 percent for cash it removes from the system.

Credit Growth

Bank credit is also starting to grow faster after shrinking for most of 2009.

The central bank said by July 2010 loans from commercial banks to the private sector rose 8.9 percent from a year earlier.

Credit from all banks and finance companies had increased 9.9 percent in July from a year earlier.

In the month of July alone loans from commercial banks rose 23.4 billion rupees to 1,292 billion rupees compared to a 105 billion rupees increase for the preceding 12 months.

One year risk free yields have fallen rapidly to below 10 percent partly due to rate cuts, lower private sector credit demand and increased state access to foreign borrowings to bridge the deficit.

Bank interest rates have fallen rapidly.

“Nevertheless, it has been noted that adjustments to lending r