Though Sri Lanka’s private sector credit growth remained strong in April – posting a year-on-year growth of 27.0% – 2026 year-end growth is likely to be halved due to the tightened monetary policy, lowered lending activity, subdued demand and tighter domestic policy, First Capital Research projected in its latest fixed income report.
“Private sector credit growth remained strong in Apr-26, expanding 27.0%YoY as outstanding credit increased by Rs 100.6 billion (b), month-on-month to Rs 10.8 trillion,” the report noted the sector growth within the month.
“Looking ahead, the recent tightening of monetary policy is expected to temper borrowing demand, thereby weighing on private sector credit growth. As a result, FCR’s forecast for private sector credit growth now stands at 15.0% for 2026E and at 12.0% for 2027E, signaling a marked moderation from the strong 25.2% growth recorded in 2025.”
The research unit noted that as a consequence of the impact of the Middle East crisis, low demand; paired with the 50.0% CID surcharge on vehicle imports and tightened LTV limits, lending activity crucially is to temper for the rest of the year.
“In addition, lending activity is expected to slow due to subdued demand, the economic impact of Middle East tensions, and tighter domestic policy measures, including the temporary 50.0% CID surcharge on vehicle imports and stricter LTV limits.”
According to the unit, between April and May of 2026, system liquidity averaged approximately Rs 170.0 b, a significant decline from over Rs 300.0 b recorded earlier in the year. It further noted that the situation has further tightened in recent weeks, with liquidity plunging below the Rs 50.0 b threshold.
The unit noted that the sharp reduction is primarily attributable to the Central Bank of Sri Lanka’s intervention through sustained US dollar sales to support the rupee during a period of rising imports, compounded by continued expansion in private sector credit.
However, the unit expects liquidity conditions to gradually recover and stabilise above Rs 100.0 b over the remainder of the year. “The anticipated improvement is expected to be driven by slower credit growth amid rising borrowing costs and moderating economic activity,” the report noted.