Sri Lanka’s Central Bank yet to witness continuous rise in private credit growth

Tharushi Nimeshika
Tharushi Nimeshika

Sri Lanka’s private sector credit growth has not been expanding to an overheated level yet though December saw a ‘one-off’ spike in the expansion of loans, Central Bank Governor Nandalal Weerasinghe said.

Private sector credit in December reached a 32-month high of 193 billion rupees, while the expansion of private sector credit recorded a 27-month high of 10.7 percent year-on-year, the Central Bank data showed.

The island nation’s economy is beginning to recover from one of its biggest financial crises, which coincides with the robust credit expansion.

However, Governor Weerasinghe claimed that because of the holiday season, the credit growth in December was extraordinary.

Following the central bank’s decision to hold its benchmark monetary policy rates constant, he told reporters during a post-monetary policy media conference in Colombo that “if we are going to see more than expected high credit growth, obviously, that’s the indication there is a demand picking up more than expected.”

“We don’t see that right now, but we need to keep an eye on the January, February, and March data points to see if the credit growth is expanding.”

“This (December credit growth) is an anomalous high trend, but generally the trend is fine. We must be careful about that if it persists.

In the past, after an overheated economy, the island nation has seen faster credit growth. The head of the Central Bank, however, stated that to determine whether the economy is overheating, the credit expansion must be closely watched.

He said, “It’s too early for us to predict.” “We need to monitor whether it is sustainable or not, and at what rate the economy is going to pick up,” he said. Sri Lanka’s economy is predicted to have grown by about 5%, which is better than the Central Bank and International Monetary Fund’s expectations and the first positive economic growth since 2019.

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