Private credit cools but still ample to drive growth: CBSL

Bank lending to the private sector is cooling in response to the Central Bank of Sri Lanka’s (CBSL) May rate increase, but remains sufficient to sustain economic growth, CBSL Chief Economist Dr. Lasitha Pathberiya said yesterday.

“We still expect this level of credit expansion to be sufficient to support economic activity,” he told reporters at the Monetary Policy Review briefing.

The moderation is part of why the CBSL sees no immediate need for further tightening. CBSL Governor Dr. Nandalal Weerasinghe said the impact of the May tightening was transmitting through the economy, and that the CBSL had taken sufficient policy measures so far.

“Right now, we don’t see the need [for further action]. We will be monitoring closely,” Dr. Weerasinghe said. He added that any future decision would be based on projections, data, and analysis.

Commercial bank credit to the private sector expanded by Rs. 106 billion in August, down from Rs. 169 billion in July and Rs. 246 billion in June. Year-on-year (YoY) credit growth slowed to 24.5% in August from close to 30% earlier.

Outstanding credit to the private sector stood at Rs. 11.5 trillion in July, the CBSL said in its policy statement. That is Rs. 1.2 trillion, or 12.1%, higher than at end-December 2025.

Dr. Pathberiya said Purchasing Managers’ Indices for Manufacturing, Services, and Construction remained in expansion territory in recent months, pointing to continued momentum. The economy grew 4.7% YoY in the first half of 2026, slowing to 4.2% in the second quarter from 5.1% in the first.

Dr. Weerasinghe said growth was slowing to around 4%, still above the 3% to 3.5% projected by several other agencies. He said monetary policy aims to curb excess demand and prevent inflation, in line with the CBSL’s mandate.

The Overnight Policy Rate (OPR) was raised by 100 basis points (bps) to 8.75% in May and held unchanged this week. Market lending rates have risen broadly in line with the increase.

The weekly Average Weighted Prime Lending Rate, charged to banks’ most creditworthy customers, has risen 136 bps since the tightening. It stood at 10.94% in the week ending 25 September, up from 9.86% at end-March. The Average Weighted New Lending Rate rose to 12.65% in August from 11.33% in March, while the rate on new loans to small and medium enterprises (SMEs) reached 13.08%.

Tighter loan-to-value rules on vehicle loans, which cap the share of a vehicle’s price that can be financed, have also slowed vehicle imports, Dr. Weerasinghe said.

Net credit to the Government fell by Rs. 465 billion between December 2025 and July to Rs. 7.8 trillion. Broad money (M2b) grew 6.7% to Rs. 17 trillion over the same period.