25 January 2024 12:51 am Views - 327
Credit to the private sector is expected to have increased by approximately Rs.100 billion in December of the previous year, marking a rise from the preceding month. This suggests a robust demand for credit from the private sector in the upcoming months, coinciding with the ongoing economic recovery and declining interest rates.
Presenting the recent macroeconomic indicators, which influenced the Monetary Policy Board to stand pat this week, the officials said that although the final credit numbers aren’t out yet, the available data suggests the licensed commercial banks have given credit touching that elusive three-digit figure in December, after many months.
The Central Bank this week left the key policy rates unchanged, both as a guard against the rising inflationary pressures and also to give more time for the market lending rates to adjust downwards, in response to its previous monetary easing measures.
The officials expect the private credit to further accelerate in the period ahead, when the financial conditions ease further from the
current levels.
Since the Central Bank pivoted to easing monetary policy in June last year, the outstanding credit to the private sector has grown every month since then, the data showed.
In the six months until November, which had Rs.63.0 billion in credit to the private sector, has grown by Rs.265.0 billion.
The direction and quantum of private credit is an important barometer to gauge the dynamism and sentiments of the economy and its actors.
Meanwhile, it is also expected that the improving business and consumer sentiments and the rebound in domestic economic activities would also help propel the demand for credit by the private sector businesses and individuals.
It is expected that the consumer borrowings in particular would return quite strongly in 2024, after two years of absence, due to also the pent-up demand for credit, as the consumers remained on the sidelines from raising money for their housing needs, other family commitments, leisure and travel and other consumption needs, due to the sky-high interest rates prevailed during the last two years.
The banks also expect such demand to come roaring back, seeking new facilities and are thus beefing up their capital buffers to meet such demand this year.
While they will be more comfortable with consumer lending for fixed income earners or salaried individuals, amid the sharply higher non-performing loans, they will still be cautious in reopening their lending spigots into the small businesses, most of which went under during the last few years.
Central Bank Governor Dr. Nandalal Weerasinghe, when asked about the target growth in private sector credit for 2024, clarified that the focus is no longer on credit targets.
Instead, the Central Bank is committed to maintaining inflation within the desired range of 4 to 6 percent in the medium term. He acknowledged the potential short-term challenges, such as the transient impacts from higher taxes, weather-related supply disruptions and increased energy costs.