December policy rates on hold

The Central Bank kept the policy rates unchanged for the month of December amid the recent pick up in the private credit and debt repayments by stateowned corporations, cutting the burden on state banksandthegovernment.

Accordingly, the repurchase and reverse repurchase rates will be kept unchanged at 6.50 percent and 8.50 percent, respectively.

The Central Bank said, in October, the credit extended to the private sector increased by Rs.27.2 billion in absolute terms.

“Credit from domestic banking units (DBUs) of commercial banks contributed around Rs.20.1 billion to the absolute increase in credit during the month, similar to the levels witnessed in September 2013, signalling a take-off in credit disbursements,” the Central Bank said.

Despite the recent monetary easing, the private sector credit growth has remained below 10 percent during the year so far. The private sector credit grew by 34.5 percent in 2011, followed by another 23 percent in 2012.

Meanwhile, moneys loaned to public corporations contracted for the second consecutive month with repayments during October 2013 amounting to Rs.12.5 billion. Broad money supply (M2b) accelerated to 18.3 percent yearon-year with increased credit to the private sector, as well as a significant increase in net foreign assets (NFA) of the banking sector and increased net credit to government (NCG) during the month.

“NCG is expected to decline in line with the revised projections for bank borrowing as presented in the National Budget for 2014.”

However, a number of economists and analysts have expressed doubts about achieving the revenue targets in the 2014 budget, questioning a possible decline in credit to the government.

Inflation slowed down to 5.6 percent in November from 6.7 percent in the previous month.

The Central Bank has slashed policy rates two times in 2013—in May and October—each time by 50 basis points.