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Wednesday, 13 February 2013

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Credit ceiling to support economic march in 2013

The credit ceiling in December 2012 was now expected to support the economy to move towards its full potential in 2013. Compared to the increase of credit of Rs. 352 billion extended to the private sector by commercial banks in 2012, the Central Bank expects credit to the private sector to increase by around Rs. 435 billion (a year-on-year growth of 18.5 percent) in 2013.

Since such a credit growth will be compatible with the anticipated expansion in economic activity, it is not expected to fuel any demand driven inflationary pressures during the year.

In the meantime, short term money market interest rates have declined sharply in response to the relaxation of monetary policy, although deposit rates and lending rates were yet to adjust downwards. However, it is expected that these essential adjustments will take place in the ensuing weeks, which will stimulate private sector economic activity.

At the same time, inflation has remained at single digit levels over the past four years, although rising to 9.8 percent, year-on-year, in January 2013, due to adverse weather conditions affecting vegetable prices, revisions to administratively determined prices and the base effect.

Although vegetable prices have already declined substantially year-on-year inflation in February is expected to remain at around the current level before decelerating thereafter.Based on the above, the Monetary Board at its meeting held on February 11, 2013 was of the view that the current monetary policy stance was appropriate, and accordingly, the Monetary Board decided to maintain the Repurchase rate and the Reverse Repurchase rate of the Central Bank unchanged at 7.50 percent and 9.50 percent, respectively.

 

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