The Central Bank has taken a decision yesterday to hold key policy rates at current levels for the fourth straight month, despite the inflation falling down to 7.5 percent in March from 9.8 percent a month ago.

Releasing the monetary policy review for April, the country’s monetary authority left the repurchase rate and the reverse repurchase rate at their current levels of 7.50 and 9.50 percent respectively, the levels set last December after the surprised 25 basis points cut after two rounds of rate increases.

It further showed the growth of broad money supply (M2b) decelerated to 17 per cent in February 2013, its lowest level in 25 months. In 2012 the broad money supply grew at an average 20.2 percent above the targeted 15 percent. The Central Bank projects the broad money to grow at 15 percent in 2013.

During the month, credit extended to the private sector increased by Rs. 18 billion, recording a Year-on-Year (YoY) growth of 13.3 percent while the credit obtained by the public sector amounted to Rs. 36.7 billion.

Meanwhile on a YoY basis, growth of credit to the private sector moderated to 17.6 percent in December 2012 from its peak of 35.2 percent in March 2012 and 34.5 per cent at end 2011 as a result of the comprehensive policy package adopted in February 2012. The projected private sector credit growth is 18.5 percent for 2013.

However the Central Bank further expects with the expected adjustments to administratively-determined prices and continued fiscal consolidation, the reliance of the public sector on bank financing to decline in the coming months.

State-owned enterprise reforms, particularly for CEB and CPC—which have an aggregate loss of Rs.150 billion in 2012—are high on the agenda of the government which is now very keen on fiscal consolidation to bring the budget deficit to 5.8 percent by end 2013.

The impending electricity tariff hike earliest by the end of this month is a step in this direction and it is expected that the reduced losses of CEB will lessen the strain on the state banks who have been lending to these institutions.

“The resulting availability of funds, together with foreign capital raised by the banking sector in recent months would provide the necessary stimulus to strengthen private sector activity,” the Central Bank said.

The Central Bank is also of the view that the monetary policy measures taken so far indicate that expected results are being realized, providing reasonable stimulus for a higher economic growth.

“At the same time, further deceleration of demand-driven inflation on a sustainable basis would provide space for further easing of monetary policy,” it said.