Credit growth to moderate: CBSL as the Central Bank expects the impact of tighter monetary policy to gradually slow lending activity after months of strong private sector borrowing driven by Sri Lanka’s economic recovery.
Credit growth to moderate: CBSL as tighter policy curbs lending demand
Speaking at the post-Monetary Policy Review media briefing, Central Bank of Sri Lanka (CBSL) Governor Dr. Nandalal Weerasinghe said the recent expansion in bank lending has been broad-based across the economy rather than concentrated in a handful of sectors.
He noted that strong lending has been recorded in construction, wholesale and retail trade, financial services and consumer-related activities, reflecting improving business confidence and the continued recovery of economic activity.
According to the Governor, the latest available data based on outstanding private sector credit as of May shows that industry accounted for approximately 37% of total lending. The services sector represented 30.5%, while personal loans and advances made up 24%. Agriculture and fisheries accounted for around 9% of total private sector borrowing.
Dr. Weerasinghe added that the Central Bank is expected to release the sector-wise credit figures for June shortly, providing further insight into the evolving lending trends across different segments of the economy.
Despite the rapid pace of credit expansion seen during the first half of the year, the Governor expressed confidence that lending growth will begin to moderate in the coming months as tighter monetary conditions work their way through the financial system.
Credit growth to moderate: CBSL following the 100-basis-point policy rate increase implemented in May 2026, together with other policy measures introduced by both the Government and the Central Bank. These actions are intended to contain excessive demand pressures while supporting macroeconomic stability.
“The monetary policy tightening in May 2026 and its gradual transmission to the real economy are expected to moderate credit growth and the buildup of demand pressures going forward,” Dr. Nandalal Weerasinghe said.
The Central Bank has maintained that while strong lending supports investment and economic expansion, excessive credit growth could generate inflationary pressures if left unchecked. Monetary policy adjustments therefore aim to ensure that economic growth remains sustainable while preserving price stability.
Latest Central Bank data show that private sector credit expanded by 27.8% year-on-year during the first five months of 2026, representing an increase of approximately Rs. 824 billion.
Meanwhile, total outstanding banking sector lending to the private sector reached a record Rs. 11.04 trillion in May, up from Rs. 10.8 trillion recorded in April. This represented a 2.2% month-on-month increase, underscoring the continued strength of borrowing demand despite higher interest rates.
Economists generally expect the effects of monetary tightening to emerge with a time lag, as higher policy rates gradually influence commercial lending rates, borrowing costs and overall credit demand. The CBSL believes these adjustments, combined with broader fiscal and regulatory measures, will help moderate lending growth without undermining the ongoing economic recovery.
Credit growth to moderate: CBSL as policymakers continue to balance supporting business activity with maintaining macroeconomic and financial stability. The Central Bank is expected to closely monitor future lending trends and inflation developments when assessing the direction of monetary policy in the months ahead.