October records fifth straight month of private sector credit growth

• Provisional data for October showed banks had extended Rs.38 bn in net credit to private sector 

Credit to the private sector has extended its growth streak for the fifth consecutive month in October, indicating a relaxation in financial conditions, the provisional data released by the Central Bank showed.  
It appears that both borrowers and lenders are inclined to re-engage, signaling a shift from nearly two years of near-zero activity that previously caused contraction in the lending markets for about a year.

The Central Bank is hoping such credit will accelerate both in absolute terms and percentage terms in the coming months. 
As per the provisional data available for October, licensed commercial banks had extended their total outstanding private sector credit by Rs.38 billion. 
Even though a decline from the Rs.70 billion in September, the persistent monthly growth in the key economic metric points has led to the growing appetite by banks to lend and borrowers to seek loans.

The biggest catalyst for the recent reinvigoration in the private sector credit market is the softening lending rates in response to the sizable cuts in key policy rates and the other monetary easing measures implemented by way of lowering the caps on selected lending products and providing guidance on where certain benchmark rates should be at various time intervals. 
The Central Bank last week cut key policy rates by a further 100 basis points providing additional tailwind for the market lending rates to come down, adding a fillip into the upward direction of private sector credit. 

The re-emergence and acceleration of private sector credit, in turn, would act as the stimulus that the economy has long awaited to emerge from recession and embark on a sustainable growth path.

The Central Bank anticipates the recent policy measures, along with the expansion in private sector credit growth over the past few months, will persist in the same positive direction.
“Reflecting the transmission of the relaxed monetary policy stance, outstanding credit to the private sector by the banking sector expanded on a monthly basis in September as well as in October 2023 based on provisional data,” the Central Bank said. 
“With the moderation of market lending interest rates, credit to the private sector is expected to increase further in the period ahead, thereby supporting the envisaged rebound of domestic economic activity,” it added.