Easing of loan volumes of SL’s commercial banks
Official data indicates that in June 2017 Sri Lanka’s bank credit to private and state stood at LKR 64 billion but reduced by an impressive 50% to LKR 32 billion the following month of July, with Central Bank credit the banking system (printed money) negative for three months in a row.
Central Bank credit to the banking system is the central driver of excess credit and economic instability in Sri Lanka’s soft-pegged monetary arrangement, which leads to forex shortages and encourages capital flight.¹
Central bank credit to government contracted 71 billion rupees in July, as the monetary authority sold down its Treasury bill stock to mop up liquidity coming from dollar purchases.²
In June it sold down LKR 3.8 billion and in May LKR 62 billion.
The impressive decline in loan volumes of Sri Lanka’s commercial banks indicates a certain stability in the country’s economy.
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