Interest rates expected to ease, credit growth to continue: CBSL

Thursday, 2 April 2026 05:47 - - {{hitsCtrl.values.hits}}

Economic Research Director Dr. Lasitha Pathberiya

Central Bank of Sri Lanka (CBSL) Economic Research Director Dr. Lasitha Pathberiya has said interest rates are expected to ease, with private sector credit continuing to grow.

“Market interest rates followed a broad-based downward adjustment in spite of a short-lived uptick in November and December 2025, and [the] reduction in interest rates will continue in the months ahead,” Dr. Pathberiya said, presenting the case for holding rates at the Monetary Policy Review No. 2 of 2026 media briefing last week.

The Overnight Policy Rate (OPR) was held at 7.75%, unchanged since May 2025 when the OPR was cut by 25 basis points (bps) from 8%.

He said momentum in private sector credit was also expected to continue.

“In January, the year-on-year (YoY) growth of private sector credit dispersed by licenced commercial banks stood at 26.3%, and in 2025, the expansion of private sector credit was at around Rs. 2 trillion compared to around Rs. 800 million in 2024,” he noted.

New private sector borrowing from Sri Lanka’s banking sector (both domestic and offshore) fell sharply to Rs. 82.6 billion in January, the lowest level in 11 months, extending the credit slowdown that emerged in the aftermath of Cyclone Ditwah.

Private sector borrowing from domestic commercial banks had peaked at Rs. 263 billion in November 2025, before declining to Rs. 183 billion in December 2025 and Rs. 108 billion in January, marking the third lowest monthly level in the past year. Only April 2025 (Rs. 87 billion) and February 2025 (Rs. 105 billion) recorded lower levels of new lending during the period.

Despite the slowdown in fresh borrowing, the total outstanding private sector debt stock rose 26.3% YoY to Rs. 10.3 trillion by January.

According to the CBSL’s most recent credit supply survey, willingness to lend was expected to increase across the retail, corporate, and small and medium enterprise (SME) sectors, “supported by anticipated growth in business activity, improved bank liquidity, favourable economic outlook, political stability, and supportive market conditions.” However, this survey was released 18 days before the US and Israel launched its bombs against Iran on 28 February.

CBSL Governor Dr. Nandalal Weerasinghe addressing the media said there were no indicators that SMEs required any credit relief, with no spike in non-performing loans despite escalating costs from the global fuel supply shocks, with the Government introducing quotas and increasing prices by more than 30% since the Mideast war began.

Dr. Weerasinghe said inflation was expected to reach 2% by end-March 2026, with the fuel prices and spillover effects factored in. He also said the 5% inflation target factored in proposed electricity tariff increases by the Ceylon Electricity Board, with a 13.56% hike due in the second quarter.