Spotlight: Econ Op-eds in Summary (Week ended 3rd February '21)
Bank credit to private sector picking up at slow pace in response to monetary easing
By: Prof. Sirimevan Colombage
From the early onset of the pandemic, the Central Bank of Sri Lanka (CBSL) took substantial steps to attempt and alleviate negative economic consequences, and attempt to provide relief to businesses and households. However, low interest rates primarily went to the government itself, as the private sector remained reluctant im borrowing.
This led to large amounts of government debt being financed through these low interest rate measures, helping manage short term budget requirements. However, this has created excess liquidity in the market, that would spill over into rising imports and high inflation as time goes on, especially once import controls are relaxed.
Combined with the dollar liquidity pressures the country is facing, this situation is causing high levels of uncertainty in Sri Lankan markets, which prevents the monetary relief from adequately reaching the population. Authorities will need to look at managing these impacts, namely those of liquidity and inflation, if the upcoming economic periods are to remain fundamentally stable.
(Compiled by: Chayu Damsinghe)
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