To counter external and internal imbalances that emerged during 2011, the central bank tightened monetary policy by raising policy rates in February and April 2012, and by imposing an 18% ceiling on l...
icensed banks’ credit growth in February. Repurchase and reverse-repurchase
rates were increased by 75 and 125 basis points in total from those of 2011 (Figure 3.21.5)
. Active liquidity management by the central bank continued absorbing excess rupee liquidity in the domestic money market to underpin the tightened monetary stance. With these measures, banks’ average lending rate on new loans rose by 300 basis points to just over 14%, and growth in credit to the private sector fell from about 35% in the first quarter to 17.6% by year-end. To address risks to growth, the central bank eased monetary policy in mid-December by reducing policy
rates by 25 basis points and allowed the ceiling on credit growth to the private sector to expire at the end of 2012.
Source: Central Bank of Sri Lanka. http://www.cbsl.lk Asian Development Outlook 2013, http://www.adb.org/sites/default/files/ado2013-sri-lanka.pdf (accessed 20 March 2013)
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