- Private sector credit grows marginally
- Industry and services record Rs. 200b loan growth y-o-y
- Says room for lending rates to decrease more
The Central Bank decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) unchanged at their current levels of 6.50% and 8%, respectively.
Central Bank Governor Ajith Nivard Cabraal urged businesses to take advantage of the infrastructure development provided by the Government to expand investment and spur growth.
“There has been a fair amount of infrastructure development that has taken place, which has still not yielded the results that we wanted to. There is huge capacity that has been built up over the last couple of years and that capacity also now needs to be utilised a little bit more by the business sector. We will be watching closely to see whether that capacity would now be turned into real economic activity. If that happens, it would give us another growth momentum without the accompanying inflation that could sometimes arise if not,” Cabraal told Bloomberg.
However, the Central Bank said business activity was increasing. Provisional data available for December 2013 showed that the growth of credit extended to the private sector by commercial banks bottomed out, with its year-on-year growth accelerating marginally to 7.5% from 7.3% in the previous month.
The Quarterly Survey on Commercial Bank Loans and Advances depicted a robust growth in accommodation provided to Industry and Services sectors facilitating the growing economic activities. Accordingly, in absolute terms, outstanding loans and advances granted to Industry and Services sectors by commercial banks recorded a growth of Rs. 200 billion in 2013 compared to the increase of Rs. 167 billion in the previous year.
Nonetheless, agriculture and consumption related pawning advances declined. Going forward, private sector credit is expected to record a growth of around 16% in 2014, with overall broad money (M2b) growth of around 14%.
The bank has also noted lending rates have room to decrease further after the standing lending facility rate was trimmed by 50 basis points in January.
“We think that the next couple of months should stay on course as we have right now because it is a little too early to see if growth momentum has changed in any way. Initial figures that we have been receiving tell us that the momentum is there; there is no change, it’s not too much, it’s not too little. So I think the way inflation has also been behaving is appropriate,” Cabraal noted in his short interview.
Going forward, the effect of the tapering of the US Quantitative Easing (QE) program on the Sri Lanka economy is expected to be minimal as a result of the prudent policies that have consistently been in place to attract investors who have a serious and long term view of the Sri Lankan economy, the statement said.
That position has been confirmed by the fact that, so far during the year (up to 10 February 2014), even after the QE tapering has been in progress, the net inflows to the Sri Lankan bond and stock markets have amounted to US$ 119 million, although many emerging economies have experienced the reverse phenomenon.
“Reflecting continued foreign currency inflows, the Central Bank has so far absorbed US$ 58.7 million on a net basis from the domestic foreign exchange market during this period while the rupee has remained stable, appreciating against the US dollar by 0.03% so far during the year,” it added.
Gross official reserves have also remained at comfortable levels, equivalent to around 5.3 months of imports.
The Central Bank expects inflation to remain at 5% in 2014 “supported by well-managed demand conditions and improved domestic supply.” In January inflation dropped to 4.4% from 4.7% in December and inflation levels have remained at single digit levels for about five years.
