Policy rates steady; credit growth spikes

25 February 2015 05:59 am - 0     - {{hitsCtrl.values.hits}}

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The Central Bank yesterday decided to keep the policy interest rates steady amid surging credit growth and depreciation of the rupee due to higher import demand.

Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank would remain at 6.50 percent and 8.00 percent respectively.

The private credit growth in December rose 8.8 percent year-on-year (yoy), maintaining its upward trend since August 2014. 

According to the Central Bank, in absolute terms, credit obtained by the private sector recorded a historic high of Rs.76.5 billion during December, resulting in a cumulative increase in private sector credit of Rs.223.9 billion during 2014.

The three listed banks who have so far released their December quarter results showed impressive growth in their loan books-- Commercial Bank 21 percent, Sampath Bank 14.5 percent and Union Bank 11 percent.

The Central Bank said that the sector-wise classification of credit growth indicated increased credit disbursements to the industry and services sectors in the latter half of 2014, which augurs well for economic growth prospects. 

“With low nominal interest rates and improving business confidence, it is expected that credit extended to the private sector would grow at a healthy pace in 2015,” the Central Bank said.

Inflation increased to 3.2 percent in January from 2.1 percent in December 2014 which was attributed to higher food prices.
The Central Bank said the effects of cut in fuel prices and essential consumer items would start to be felt from February, resulting in a downward shift in inflation.

However, rating agency Moody’s in a recent report cautioned the government of a possible revival in inflation due to the same reasons.
During the year 2014, net credit to the government (NCG) from the banking sector increased by Rs.134.6 billion while credit to public corporations increased by Rs.80.9 billion. 

Broad money (M2b) recorded a YoY growth of 13.4 percent by December 2014 compared to the projected broad money growth of 13.5 percent for the year. Broad money growth averaged 13.3 percent during 2014.

The rupee depreciated against the US dollar by 1.4 percent by February 20, 2015 year-to-date.“With this seasonal demand gradually easing and the realisation of the anticipated foreign investment inflows, it is expected that the external sector would show greater resilience during the remainder of the year,” the Central Bank said.

The bank also decided to keep restrictions on its deposit window for banks unchanged.  

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