Sri Lanka’s central bank says S&P downgrade unwarranted

Feb 29, 2012 (LBO) – Sri Lanka’s Central Bank says an outlook and rating by Standard & Poor’s in the wake of balance of payments pressure is unwarranted because corrective steps have been taken by the government. S&P on Wednesday cut the outlook on Sri Lanka’s ‘B+’ foreign currency rating to ‘stable’ from ‘positive’ and downgraded a ‘BB-‘ local currency rating to ‘B+’.

Sri Lanka’s rupee came under pressure from high credit growth especially from state energy utilities from mid 2011 and was worsened by central bank credit expansion to sterilize forex interventions with printed money from September onwards.

Sri Lanka lost more than a quarter of its 8.1 billion rupees by end December 2012.

But from February interventions were partially halted which can reduce central bank credit expansion, fuel prices and policy rates raised. Market interest rates have also been allowed to move up.

The full statement from Central Bank is reproduced below

The Sri Lankan economy is estimated to have grown by around 8.3 per cent in 2011 recording the second consecutive year with an annual growth rate of 8 per cent or above for the first time in the post-independence history. Year-on-year inflation has r