CB’s tight monetary policy measures fruitful
The tight monetary policy measures implemented by the Central Bank to
moderate private sector credit expansion continued to prove effective
and the overall private sector credit growth moderated substantially to
28.7 percent, year-on-year in August, falling below 30 percent for the
first time since March 2011.
In absolute terms, the expansion of credit in August was Rs. 14
billion compared to the average monthly increase of Rs. 51.8 billion in
the first quarter of 2012. Despite the slowdown of credit to the private
sector, broad money growth in August was higher than the previous month,
reflecting higher public sector borrowing. Year-on-year inflation
declined for the second consecutive month reaching 9.1 percent in
September.
While short term pressures on inflation arising from recent revisions
to administratively determined prices and uncertain global supply
conditions remain elevated, the tight monetary policy stance is expected
to prevent second round effects of supply side factors entrenching into
future inflation, and thereby help maintain inflation at mid-single
digit levels over the medium term. Economic Research Department October,
23 2012.
The global economy continued to recover at a slow pace, although the
US economy showed some positive signs, supported by the recent stimulus
measures implemented by the Federal Reserve.
Further, the protracted economic downturn in the euro area has
weakened the demand for their imports. With 7.4 percent GDP growth
projected for the third quarter, the Chinese economy has also showed
some signs of slowdown. In view of these setbacks to the global economic
recovery, the IMF has revised its outlook for global growth to 3.3
percent in 2012 and 3.6 percent for 2013.
This slowdown is likely to have a negative impact on emerging markets
and developing economies, which mainly depend on external demand
reflecting such trend, growth of Sri Lankan exports too has decelerated
during the last six months, albeit moderately, whilst demand management
measures introduced in early 2012 have resulted in imports falling
substantially.
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