Sri Lanka private credit negative, govt credit up in Oct

According to official figures, Sri Lanka’s private credit decreased by 46 billion rupees in October 2022 as deleveraging continued, while credit to the government increased by 135 billion rupees.

The five months leading up to October saw a 224.4 billion rupee decline in private lending.

In October, the central bank’s (printed money) credit to the government increased by 49.3 billion rupees to 3,351 billion rupees, making it the second-largest creditor of the government in the present currency crisis, behind only the Employees Provident Fund.

The central bank’s credit as of October 2022 was 1,257 billion rupees, slightly more than the 1,225 billion in 2021.

In October, reserve funds decreased by 36.9 billion rupees to 1341.7 billion rupees. While economic activity has slowed, many banks are depositing funds at the central bank without making new loans.

After previously redeeming a government bond with its reserves and conducting further interventions, the central bank used ACU money to operate in the market in 2022 and sterilized the interventions, essentially re-financing the private sector.

After interfering in the foreign exchange markets to balance the intervention and lower interest rates, a central bank with a policy rate prints money, essentially re-financing bank credit, even to the private sector.

However, because Treasury securities were used for open market operations, the activity is categorized as central bank lending to the government and eventually grouped with deficit monetization.

Classical economists and analysts have demanded that the authority officials were given in 1950 to sterilize interventions, generally suppress interest rates, and trigger currency crises be revoked in order to help Sri Lanka advance and stop people from becoming impoverished due to monetary instability.

Credit to state-run businesses increased by 74.8 billion rupees in October, bringing the total to 1,777.80 billion. The cost of energy has increased at state utilities.

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