Sri Lanka private credit negative in July

ECONOMYNEXT – Sri Lanka’s private credit was negative in July 2022 for the second straight month, data from the state debt office showed, as high interest rates discouraged new loans and customers focused on repayments.

Slowing domestic credit helps stabilize the rupee by reducing outflows through the trade as investment or consumption credit falls, along with broader economic activity.

Private credit outstanding fell 40.8 billion rupees to 3,263.9 billion rupees in July after falling 40.6 billion in June bringing down the annual growth rate to 15.2 percent from 17.1 percent.

Credit to state enterprises still grew 24.9 billion rupees in July, with annual growth at 53.7 percent up from 52.7 percent a month earlier.

Credit to government grew 149.1 billion rupees with central bank credit up 169.8 billion rupees.

Credit from commercial banks fell 3,562 billion rupees in July from 3,602.8 billion rupees in June.

Some liquid banks are no longer investing in rupee bonds but are placing cash overnight in the central bank.

Meanwhile concerns over whether rupee bonds would be re-structured has also put off some from investing in them exposing a gap in the current debt restructuring framework.

In past currency crises, following a float of the currency, bank bought into bonds as private credit slowed. Sri Lanka’s balance of payments has corrected sharply since rates were raised in April but there is still no clean float. (Colombo/Sept11/2022)