Srilanka Centarl Bank hike interest rate &put ceilling on Lending by Banks

     Srilanka central Bank in a surprise move  increased the interest rate by 50 bps recently  to 7.5%. This is the first rate hike after Jan 2011. Central Government has also put restriction on credit disbursement by Bank. Now Bank can not lend beyond a particular level. Credit Growth rate has been capped for each Banks. Recently the Import to Srilanka has increased significantly. In 2011 it has grown by 54% as against Export growth of 22%. This has led to Excessive Credit growth in Srilanka (34% ) as against the Srilanka Central Bank target of 16%.Majority of financing is Import financing.Nowonwards no Bank can lend beyond 18% more as compared to its last year lending ( if it is for local deposit ) . Banks who want to lend out of foreign fund can go 5% additional that is up to  23% more against last year lending. Trade deficit of Srinka has doubled in 2011 to US$8.8 Billion. Central Bank last year intervened into the FX market and sold huge amount of USD due to which the FX reserve has also gone down to US$6 Billion.