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Private credit growth expected to continue unabated despite virus snags

17 November 2020 01:43 am - 0     - {{hitsCtrl.values.hits}}

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  • ICRA Lanka believes momentum in private credit to continue in October 

Rating agency ICRA Lanka Limited expects the private sector credit growth, which set off to a robust start in August and accelerated in September, will continue its momentum, in spite of the continuous hurdles posed by the resurgence of the virus to economic activities. Sri Lanka’s outstanding private sector credit, which fell into negative growth following the outbreak of COVID-19 in March, got off to a robust Rs.78.3 billion growth in August, which extended into September with a further Rs.87.4 billion, bringing the total private sector credit extended during the first nine months to Rs.198 billion. 


“ICRA Lanka expects the private sector credit growth momentum to continue in October as well,” the rating agency, which is part of Moody’s Investors Service, said yesterday. 


Private sector credit is a key gauge to measure the health and dynamism of the economy, more specifically its actors – both individuals and businesses – as the expansion in private sector credit suggests that the money is flowing into the hands of these actors for their consumption and investments. 


The continuous flow of private sector credit suggests a working economy while slowing credit denotes a cooling economy. 


Meanwhile, ICRA Lanka still bets on another round of monetary policy easing, by way of a rate cut, at the coming policy meeting scheduled on November 26, to further support the economy, which was somewhat beset by the October restrictions on the movement of people and certain other economic activities. 


“With coronavirus cases surging daily, the economic activities will be impeded,” it said.  “Labour shortage, either due to forced or self-imposed isolation, will likely spread to many industries and businesses.

These disruptions are already having their toll on the export-oriented manufacturing industries and will hurt the reserve accumulation of the country. Headline inflation is likely to remain around 4 percent.  In this background, we do not rule out the possibility of another monetary easing in the next Monetary Policy Committee meeting,” it added.


Leading up to the seventh monetary policy on October 22, ICRA Lanka made a similar prediction but the rate setting committee stood pat, as the data showed their earlier monetary policy actions have still more room to run their course, as the market lending rates are still adjusting and the credit is flowing into the real economy.


In any case, the economies around the world, including Sri Lanka, are now learning to deal with the pandemic while people are adapting to go about their livelihoods practising health precautions, without resorting to extreme measures such as closing down economies, which have far dangerous implications than the virus itself.

 

 

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