Credit and GDP growth paradox

22 October 2014 06:11 am - 0     - {{hitsCtrl.values.hits}}

A A A

Responding to the ‘creditless growth’ criticism by some quarters, Dr. Weerasinghe said there was a shift in financing the current high levels of economic growth from private credit to off-shore financing, but said economic growth without credit growth is not sustainable.

 

“Growth (economic) remains almost steady though private credit was low. So, that is basically a dilemma for some people.Which means the monetary policy expansion has happened not necessarily through private sector credit but other ways, specially from the external sector in terms of external borrowings by the government and the private sector, pick up in export earnings and strong remittance flows,” he explained. When the CB issues Rupees for these dollar inflows, it creates additional monetary expansion which in turn supports the economic growth.

Therefore, according to Dr. Weerasinghe, the current level of economic growth has not been financed by private credit but by strong external flows.

 

“But that can’t happen continuously and that’s why we thought we need to come back to the normal situation where growth is financed by both domestic and external sources,” he remarked.

 

In September, CB limited commercial banks to park excess liquidity at SDF of 6.5 percent to thrice a month and in exceeding three times at 5.0 percent in order to discourage the banks to approach CB and lend those excess money to productive economic sectors.

 

At the end of 1H’14, there was close to Rs.400 billion worth of banking sector excess liquidity. Sri Lanka’s economy grew by 7.7 percent during the 1H’14. The CB wants to maintain the short term interest rates at 6.0 percent with a mid-term inflation target of 3-5 percent.

See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.

 

  Comments - 0

See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.

 

 

Add comment

Comments will be edited (grammar, spelling and slang) and authorized at the discretion of Daily Mirror online. The website also has the right not to publish selected comments.

Reply To:

Name - Reply Comment




Bio Bubble Bursts on tissa safari drivers

Ukrainian tourists are visiting Sri Lanka at present with the involvement of

Army’s LRRP Ambush of LTTE’s Military Intelligence Chief

A news report in the Dailymirror last August stated that the Long Range Recon

“I don’t think Sri Lankans can be realistically ruled by force” -Ahimsa Wickrematunge

Twelve years after the assassination of Lasantha Wickrematunge, the founding

Decisions to be made in Sri Lanka’s hunt for the COVID-19 Vaccine

Around the world, governments are gearing up to roll out nationwide immunizat

See Kapruka's top selling online shopping categories such as Toys, Grocery, Flowers, Birthday Cakes, Fruits, Chocolates, Clothing and Electronics. Also see Kapruka's unique online services such as Money Remittence,News, Courier/Delivery, Food Delivery and over 700 top brands. Also get products from Amazon & Ebay via Kapruka Gloabal Shop into Sri Lanka.