Banks shell out Rs.60bn in fresh credit to private sector in July

• Jitters over election outcome and possible events thereafter appear to be keeping businesses on edge 

The banks shelled out Rs.60.2 billion in fresh credit to the private sector borrowers in July, logging a modest growth of 6.9 percent from a year ago. 

This is a sign that the banks are on pace to accelerate their lending drive on the back half of the year, after an unimpressive growth in the first half.

While this is somewhat a deceleration from June, during when the commercial banks gave Rs.74.5 billion in new credit, the banks now show more willingness than a few months ago to extend more credit.

However, it is yet unknown if the uncertainty, which is fast gripping the markets and the overall business sentiments at present, due to the upcoming presidential elections, would slow the pace in the months hereafter.

Unlike in the decades past, there is a widespread anxiety over the possible events after the elections this time. This is being expressed by many who are in business and investments, who have either paused their activities until the elections.

The stock market has also taken a nosedive, particularly since the elections were announced, wiping out a staggering Rs.650 billion of market value of the listed firms.

The July credit has brought the total credit disbursed in the first seven months to Rs.206.2 billion.

The pace of private sector credit is one of the key macroeconomic readings the Monetary Policy Board would closely look at when it is scheduled to meet later this month, to decide on the interest rates.

Last time in July, the Central Bank delivered a 25-basis-point cut in key policy rates, bringing down both the Standing Lending and Deposit Facility rates to 9.25 percent and 8.25 percent, respectively.

Cutting rates, the Monetary Policy Board said it wanted to send a signal that it remains committed to the current monetary easing path, as the prices, both current and future, are under control.

Given the still modest pace of growth in net credit growth and the extremely slow price pressures in the economy, there is a possibility that the Monetary Policy Board could follow through with another smaller cut in rates to further push the lending rates down and to channel more funds into the real economy.

For five consecutive weeks, the shorter-term Treasury bill yields have climbed and so was the benchmark prime lending rate, which jumped by another 19 basis points last week to 9.32 percent.