Cheer for private sector credit!

* December records historic high of Rs. 76.5 b, bringing 2014 full year growth to Rs. 224 b or 8.8% reversing the dip suffered in 2013
* CB says increased credit disbursements to industry and services sectors in latter half of 2014 augurs well for economic growth prospects
* Predicts private sector credit to grow at a healthy pace in 2015 with low nominal interest rates and improving business confidence
* Policy rates kept unchanged at record lows for a 13th straight month

Private sector credit in December turned merry, recording a historic high and enabling a finish to 2014 with growth reserving the contraction experienced in 2013 over 2012.

The Central Bank said yesterday that credit extended to the private sector by commercial banks grew by 8.8% on a y-o-y basis, maintaining its upward trend since August 2014.

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

In 2013, credit to private sector grew by Rs. 176 billion or 4.7% lower compared with Rs. 352 billion increase or 17.6% enjoyed in 2012.
The Central Bank said the sector-wise classification of credit growth indicates 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 added in its statement following the February monetary policy review.

It also said during 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 y-o-y growth of 13.4% by December 2014 compared to the projected broad money growth of 13.5% for the year. Broad money growth averaged 13.3% during 2014.

On the external front, the Central Bank said the rupee depreciated against the US Dollar by 1.4% by 20 February year-to-date, mainly due to higher import demand. 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.

Year-on-year (y-o-y) headline inflation increased to 3.2% in January 2015 from 2.1% in December 2014 while annual average inflation declined marginally to 3.2% from 3.3% recorded in the previous month. The increase in inflation in January is attributed to higher food prices, which have now broadly stabilised.

The impact of the recent downward price revisions of domestic petroleum prices as well as of essential consumer items would be reflected in official price indices from February, which would result in a considerable downward shift in inflation in the period ahead. Accordingly, it is expected that inflation, which has registered single digit rates in the post-conflict period, will continue to remain comfortably low in 2015.

Taking these factors into consideration, the Monetary Board at its meeting held on 23 February decided to maintain policy interest rates of the Central Bank unchanged at their current levels. Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank would remain at 6.50% and 8.00%, respectively. Access to the Standing Deposit Facility (SDF) will remain rationalised.

The date for the release of the next regular statement on monetary policy would be announced in due course.

http://www.ft.lk/2015/02/25/cheer-for-private-sector-credit/