- Accommodative monetary policy to support credit expansion
- Central Bank to closely monitor potential risks and vulnerabilities
The Central Bank of Sri Lanka (CBSL) expects the broad-based recovery of credit to the private sector to continue in 2025, enhancing the productive capacity of the economy.
Releasing the CBSL policy agenda for 2025, Governor Dr. Nandalal Weerasinghe said credit to the private sector is expected to continue its expansion in 2025, supported by the prevailing accommodative monetary policy stance and improving business and investor sentiment.
He said that the expansion in private sector credit will enhance the productive capacity of the economy, thereby supporting domestic economic expansion.
However, he added that CBSL will continue to closely monitor developments in credit and related dynamics to ensure the timely identification and mitigation of potential risks and vulnerabilities in maintaining domestic price stability.
Moreover, he said that timely monetary policy intervention will prevent excessive swings in interest rates, setting the platform for the economy to navigate through challenging economic circumstances, while facilitating the economy to reach its potential.
The recovery in credit to the private sector has been supported by the noteworthy reduction in market lending interest rates.
“However, the central bank observes some excessive, outlier rates of interest on facilities extended to micro, small and medium scale enterprises (MSMEs) as well as marginal borrowers and certain credit products, which are not consistent with the prevailing relaxed monetary policy stance,” he added.
According to CBSL data, credit to the private sector has expanded by Rs. 504.5 billion in the first ten months of 2024.
Further, Weerasinghe said that risks associated with lending are on the decline while the credit appetite of banks and financial institutions is improving given the overall stability and recovery witnessed in the economy.
He noted that while low interest rates have helped revive credit and contributed to improving the overall business sentiment, they could also disproportionately hurt savers.