Private sector credit to grow at 18.5%; warns over credit to corporations

The Monetary Board of Sri Lanka yesterday decided to keep the policy rates unchanged during the first month of 2013, following a 25 basis points rate cut last December to spur growth.

Accordingly the Repurchase rate and Reverse Repurchase rate would remain unchanged at 7.50 percent 9.50 percent, respectively.

Rationalizing its monetary stance, the Central Bank said broad money growth continued to moderate along with a deceleration of private sector credit and credit obtained by the government as a result of a ‘conscious efforts by the government to meet fiscal targets’.

Private sector credit growth declined 20.7 percent by November from the peak growth of 35.2 percent recorded in March 2012 with net credit to the gover nment which increased up to November declined substantially during December.

However the Central Bank noted that credit obtained by the public corporations continued to grow exerting some pressure on broad money growth.

At a recent forum, Central Bank Governor Ajith Nivaard Cabraal called for energy price revisions to bring Ceylon Petroleum Corp. and Ceylon Electricity Board to at least breakeven level by end of 2013.

Commenting on the external sector performance, the Central Bank said that a sharp decline in imports has helped cumulative trade deficit for the first 11 months of 2012 to decline by 2.1 percent Year-on-Year.

The monetary authority further said that due to increased foreign inflows the Balance of Payment (BoP) recorded a surplus and in 2013 the target is to achieve a higher BoP surplus and an improved trade balance amid increased remittances, foreign inflows to the government and capital market.

 “As a result of the significant foreign inflows already being witnessed, the rupee which appreciated by 5.3 percent against US dollar during the second half of 2012, appreciated further by 0.6 percent by January 15, 2013,” the Central Bank said.

Meanwhile the Central Bank said effective demand management policies that were in place in 2012 are likely to have moderate demand sufficiently, reining in future inflation and inflation expectation.

“As result, inflation is projected to moderate from March 2013 and reach mid-single digit levels thereafter” the Central Bank noted.

Sri Lanka’s inflation which continued to increase from February to July 2012 largely due to price adjustments eased in December declining to 9.2 percent Year-on-Year basis from 9.5 percent in December.

The central Bank expects private sector credit to grow at 18.5 percent in 2013 and said credit disbursement by banks will be monitored closely to ensure that credit expansion takes place at desired pace.

The Central Bank considers such rate of credit expansion is adequate to deliver an economic growth of 7.5 percent in 2013 without giving rise to demand-driven inflationary pressures.