Private sector credit slows down

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Credit to the private sector in the month of April slowed down to Rs.14.5 billion from Rs.41.4 billion recorded a month ago, the official data released by the Central Bank showed. 

However, net credit to government rose Rs.13.7 billion compared to a net pay back of Rs.31.7 billion in the previous month.

Credit to state-owned corporations also increased to Rs.13.1 billion against Rs.3 billion in April. 

The total credit to corporations in the first four months of the year rose 50.4 percent year-on-year (YoY) to Rs.497.8 billion, reflecting the dire financial state of most of the state-owned enterprises (SOEs) are currently in.

The majority of the borrowings by the corporations amounting to Rs.297.5 billion were drawn from foreign currency banking units (FCBUs), which is an increase of 59.8 percent YoY. 

Net credit to government in the first four months rose 17.3 percent YoY 1626.8 billion. The borrowings by the government from foreign currency banking units (FCBUs) rose 36.1 percent YoY to Rs.268.1 billion. 

Credit to the private sector rose 15.2 percent YoY to 2, 859.6 billion. The projected private credit growth for 2015 is 15.5 percent. 

Sri Lanka kept the policy rates steady for the second consecutive months in June after it made a surprise 50 basis cut in April 2015 due to the pick in credit in the low inflation economy.

The Central Bank cut its policy rates this April in a bid to stimulate slowing economy as well as to reduce the debt servicing costs largely tilted towards the domestic banking sector. 

Sri Lankan economy slowed to 6.4 percent in the first quarter of 2015, after growing at 7.6 percent in the same quarter in 2014 and 7.4 percent for the whole of 2014. 

The Central Bank in May cut its 2015 growth outlook to 7 percent from an earlier projected 8 percent, mainly due to slow down in state investments. 

Due to still benign inflation, Central Bank’s monetary policy is weighing towards the easing side and Standard Chartered Bank in a recent report said they expect another 50 basis points reduction in policy rates in the second half of this year due to low inflation and moderating growth. 

The headline inflation edged down to 0.1 percent in June, after remaining below 1 percent for five consecutive months.