October private credit growth loses momentum due to lockdowns

• Oct. private credit growth recorded at Rs.59bn, up 6.4% YoY 
• Total private sector credit extended during Jan-Oct. at Rs.258bn

Private credit continued to grow in October, albeit at a slower pace from a month earlier, as virus-related lockdowns in key populous regions in the country posed a setback to economic growth.  The total outstanding private sector credit grew by Rs.59.0 billion in October to Rs.6.055 trillion, after rising by Rs.78.3 billion in August and Rs.87 billion in September, as the economy rebounded after nearly two-month long lockdown that ended in mid-May.

The October private sector credit expansion translated into a 6.4 percent growth over the same month, last year and also marked accelerations from 5.2 percent in August and 5.8 percent in September, due to the lower base in 2019. 

The Monetary Board, which left the key policy rates unchanged yesterday, was of the view that its earlier actions have more room to run their course while the excess liquidity in the overnight money market, which is currently at around Rs.185 billion, could be passed down to the market via lending to the private sector. 

“The Board, having noted the reduction in overall market lending rates so far during the year, stressed the need for a continued downward adjustment in lending rates to boost economic growth in the absence of demand-driven inflationary pressures, particularly considering the significant levels of excess liquidity prevailing in the domestic money market,” a Central Bank statement said.

With the caps on certain lending products, most recent one being mortgage-backed housing loans and lending targets waiting to be enforced in due course, could further accelerate this momentum, which slowed down due to virus-related lockdowns. 

With the October private credit, the total private sector credit extended by licensed banks during the first 10 months is now at Rs.258 billion. 

The Central Bank expects the private sector credit growth in November to remain somewhat muted, due to lockdowns and certain restrictions on economic activities caused by the resurgence of new coronavirus.