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Net Credit to Private Sector Shrinks by Rs. 52.2 Billion

There is a noticeable appetite for credit in the market, as interest rates have reached levels favorable to borrowers.

In a surprising turn, the Central Bank observed a break in the months-long expansion of private sector credit in January, with net credit to the private sector contracting by Rs. 52.2 billion. This contraction followed a growth of slightly over Rs. 100 billion in December 2023.

While some market analysts initially attributed this deviation to importers frontloading import-related facilities ahead of anticipated tax changes in 2024, the Central Bank stated on Tuesday that it was “partly due to valuation effects arising from the appreciation of the Sri Lanka rupee against the US dollar and possible post-festive season settlements.”

Officials clarified that when adjusted for exchange rate impacts, the decline was minimal. However, they noted a resumption of private credit growth to some extent in February.

Nevertheless, the Central Bank’s tone did not indicate complete satisfaction with the pace of growth. This lackluster performance in private sector credit significantly influenced their decision to reduce rates on Tuesday, aiming to stimulate demand for credit and fuel ongoing economic recovery.

The Central Bank stated that the prevailing accommodative monetary policy stance, coupled with the rate cuts, is expected to further lower market lending rates and encourage expansion of credit to the private sector by licensed commercial banks (LCBs) in the foreseeable future.

Several banks anticipate growing their lending portfolios by at least 10 percent or more in 2024, following a period of decline.

The direction and pace of credit growth serve as crucial indicators of economic vibrancy. Source –

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