Private sector credit continues to decline in February albeit at slower pace

• Credit to private sector fell Rs.57.6bn in February, down from Rs.96.1bn in January 

Credit to the private sector continued to decline through February but the pace at which it was coming down slowed compared to a month ago, reflecting that the financial conditions are easing after the rates began to come down on hopes of a pivot in the monetary policy as early as in the second quarter. 

The data showed that credit to the private sector from commercial banks falling Rs.57.6 billion in February, down from Rs.96.1 billion in January. 

The private sector credit is an important barometer of the health of the economy and it has been in decline since May last year, after the banks closed their lending spigots to minimise the fallout on their asset quality, after the rates went through the roof. 

The Central Bank a fortnight ago said it expected the private sector credit to turn positive from the back half of this year, around the same time the economy is projected to turn around to register a growth. 

The atmosphere for such a turnaround in both credit and the overall economy is adjusting with the rates falling and the banks slowly easing their credit standards after more than a year. 

The prime lending rate, the benchmark lending rate that provides a harbinger for rates from corporate loans to small business loans to home mortgages to consumer loans, has shed nearly 6.0 percent from the start of this year.

Economic analysts forecast the prime rates to fall to between 12 to 15 percent by the end of the year, from its current 21.40 percent. 

While the banks are starting to ease their lending standards, the demand for credit appears to be picking up with the resurgence seen in consumer spending at present. 

People are flooding streets to buy clothing and other household stuff for the New Year after four years of being unable to properly venture out and celebrate their traditional new year. 

This provides a signal that a wave of credit demand is coming in the subsequent months from consumers as well as businesses to make products to make up for the demand. 

The disinflation is also boding favourably with both consumers and businesses to ramp up their spending.