Ceylon FT: The Central Bank kept monetary policy rates on hold for a straight seventh month last Friday after loosening its monetary policy stance 19 months ago as private sector sentiment continues to be low.
Inflation rose to 3.6% in July 2014, up from 2.8% a year ago on rising food prices and the Central Bank on Friday said inflation was expected to remain benign despite the drought.
It said market interest rates have begun to decline but private sector credit growth decelerated to 2% by the end of June.
Economists point out that the private sector was not borrowing for expansion as it was adopting a wait-and-see approach with the country still recovering from a balance of payments crisis triggered in 2011. Since December 2012, the Central Bank has been loosening its monetary policy stance; but it has been the government that has largely benefitted by the move. Many speakers at the Sri Lanka Economic Summit held earlier this month said poor rule of law was deterring both local and foreign investors.
"Credit obtained by the private sector is expected to increase gradually with high levels of liquidity in the domestic money market, low short-term lending rates and declining longer-term rates," the Central Bank said releasing its Monetary Policy statement for the month of August 2014.
"Considering available information for the first half of the year, real economic growth is likely to remain broadly on target in 2014. Nevertheless, reflecting the continued low inflation environment, the Implicit GDP Deflator is expected to be lower than the originally projected level of 6%, and consequently, nominal GDP growth is expected to be lower than the initially projected rate of 14.3%. Accordingly, the Central Bank expects broad money to grow by around 13%, on a year-on-year basis by end 2014, compared to the previously expected 14% for 2014," the Central Bank said.
"The external sector strengthened further in recent months supported by timely and appropriate policies of the Central Bank and the government. Favourable developments in exports observed from June 2013 are expected to continue during the remainder of 2014.
Higher inflows attributed to rising workers' remittances and receipts from tourism along with the lower trade deficit have positively impacted the external current account. Consequently, gross official reserves surpassed the historic milestone of US$ 9 billion, and currently stand at around US$ 9.2 billion. In the meantime, the Central Bank has purchased over US$ 1 billion from the domestic foreign exchange market on a net basis so far during the year," the bank said.
"In this background, the Monetary Board, at its meeting held on 14 August 2014, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at their current levels of 6.50% and 8%, respectively."
Private sector credit growth is expected to pick up 'very slowly' with second-tier corporates, small and medium enterprises and consumers finding it difficult to borrow, Standard Chartered Bank said in a new report in July.
In 2013 and so far this year, the biggest borrower from the domestic banking system has been the government. In 2013, the government took more than 70% of the new loans generated by the domestic banking system and in terms of net borrowings; the government emerged as the only borrower during the first five months of this year.
During the first five months of this year, the government received new loans amounting to Rs 50.2 billion from domestic sources including banks and the Central Bank.
The private sector, the engine of growth, has not borrowed on a net basis and settled Rs 56.1 billion during this period.
In May alone, the private sector settled Rs 3.3 billion and the government borrowed Rs 2.2 billion.
"The private sector has not been borrowing because there is a lot of uncertainty in the economy. One a net basis, the government sector emerges as the only borrower from the domestic financial market for the first five months of this year. Some of the foreign borrowings have been used to retire some of this debt," a financial market analyst said.
The growth for private sector credit from domestic banks fell further to 2.1% in May, down from 2.7% a month earlier and 10.2% a year ago.
Credit from domestic banks to the government grew at 22.1% in May, down marginally from Rs 22.7% a month ago and 49.4% a year ago.
Credit from the Central Bank saw declining growth rates of 38.7% in May, from 35.1% a month ago and 27.6% a year ago.
Credit to public corporations saw growth increase to 31.1% in May, up from 30.9% a month ago but down from 50.3% a year earlier.
Central Bank monetary policy easing since December 2012 has benefited the government and influential citizens more than ordinary citizens.
Ordinary savers saw interest rates fall sharply while interest on their loans fell marginally.
However, the government and high net worth borrowers saw their lending rates fall sharply.
In May 2014, the average weighted lending rate of the commercial banking sector stood at 14.01%, down 225 basis points from a year ago.
The average weighted deposit rate stood at 7.74%, down 300 basis points from a year ago and the fixed deposit rate stood at 9.45%, down 445 basis points from a year ago.
The one year fixed deposit rate at State-owned National Savings Bank was 8%, down 450
basis points from a year ago.
Lending rates for high net worth borrowers reach 8.17% in May, down 458 basis points from a year ago.
The 12-month benchmark Treasury bill yield was 7.02%, down 384 basis points from a year ago.
With the government forecasting the economy would grow from US$ 67 billion in 2013 to US$ 150 billion by 2020, the Chairman of the Ceylon Chamber of Commerce Suresh Shah earlier this week said the country needed to establish a culture of meritocracy in order to achieve this goal.
The Sri Lanka Economic Association has argued that the prevailing growth trajectory was unsustainable and the country risked getting into a debt trap if foreign direct investments and exports did not increase significantly, making rule of law and institutional integrity crucial factors for success.
Since the end of the conflict the country has registered an average growth rate of 6.6%. But since 2006, the National Mean Household income has grown a mere 0.5%.
www.ceylontoday.lk
Inflation rose to 3.6% in July 2014, up from 2.8% a year ago on rising food prices and the Central Bank on Friday said inflation was expected to remain benign despite the drought.
It said market interest rates have begun to decline but private sector credit growth decelerated to 2% by the end of June.
Economists point out that the private sector was not borrowing for expansion as it was adopting a wait-and-see approach with the country still recovering from a balance of payments crisis triggered in 2011. Since December 2012, the Central Bank has been loosening its monetary policy stance; but it has been the government that has largely benefitted by the move. Many speakers at the Sri Lanka Economic Summit held earlier this month said poor rule of law was deterring both local and foreign investors.
"Credit obtained by the private sector is expected to increase gradually with high levels of liquidity in the domestic money market, low short-term lending rates and declining longer-term rates," the Central Bank said releasing its Monetary Policy statement for the month of August 2014.
"Considering available information for the first half of the year, real economic growth is likely to remain broadly on target in 2014. Nevertheless, reflecting the continued low inflation environment, the Implicit GDP Deflator is expected to be lower than the originally projected level of 6%, and consequently, nominal GDP growth is expected to be lower than the initially projected rate of 14.3%. Accordingly, the Central Bank expects broad money to grow by around 13%, on a year-on-year basis by end 2014, compared to the previously expected 14% for 2014," the Central Bank said.
"The external sector strengthened further in recent months supported by timely and appropriate policies of the Central Bank and the government. Favourable developments in exports observed from June 2013 are expected to continue during the remainder of 2014.
Higher inflows attributed to rising workers' remittances and receipts from tourism along with the lower trade deficit have positively impacted the external current account. Consequently, gross official reserves surpassed the historic milestone of US$ 9 billion, and currently stand at around US$ 9.2 billion. In the meantime, the Central Bank has purchased over US$ 1 billion from the domestic foreign exchange market on a net basis so far during the year," the bank said.
"In this background, the Monetary Board, at its meeting held on 14 August 2014, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at their current levels of 6.50% and 8%, respectively."
Private sector credit growth is expected to pick up 'very slowly' with second-tier corporates, small and medium enterprises and consumers finding it difficult to borrow, Standard Chartered Bank said in a new report in July.
In 2013 and so far this year, the biggest borrower from the domestic banking system has been the government. In 2013, the government took more than 70% of the new loans generated by the domestic banking system and in terms of net borrowings; the government emerged as the only borrower during the first five months of this year.
During the first five months of this year, the government received new loans amounting to Rs 50.2 billion from domestic sources including banks and the Central Bank.
The private sector, the engine of growth, has not borrowed on a net basis and settled Rs 56.1 billion during this period.
In May alone, the private sector settled Rs 3.3 billion and the government borrowed Rs 2.2 billion.
"The private sector has not been borrowing because there is a lot of uncertainty in the economy. One a net basis, the government sector emerges as the only borrower from the domestic financial market for the first five months of this year. Some of the foreign borrowings have been used to retire some of this debt," a financial market analyst said.
The growth for private sector credit from domestic banks fell further to 2.1% in May, down from 2.7% a month earlier and 10.2% a year ago.
Credit from domestic banks to the government grew at 22.1% in May, down marginally from Rs 22.7% a month ago and 49.4% a year ago.
Credit from the Central Bank saw declining growth rates of 38.7% in May, from 35.1% a month ago and 27.6% a year ago.
Credit to public corporations saw growth increase to 31.1% in May, up from 30.9% a month ago but down from 50.3% a year earlier.
Central Bank monetary policy easing since December 2012 has benefited the government and influential citizens more than ordinary citizens.
Ordinary savers saw interest rates fall sharply while interest on their loans fell marginally.
However, the government and high net worth borrowers saw their lending rates fall sharply.
In May 2014, the average weighted lending rate of the commercial banking sector stood at 14.01%, down 225 basis points from a year ago.
The average weighted deposit rate stood at 7.74%, down 300 basis points from a year ago and the fixed deposit rate stood at 9.45%, down 445 basis points from a year ago.
The one year fixed deposit rate at State-owned National Savings Bank was 8%, down 450
basis points from a year ago.
Lending rates for high net worth borrowers reach 8.17% in May, down 458 basis points from a year ago.
The 12-month benchmark Treasury bill yield was 7.02%, down 384 basis points from a year ago.
With the government forecasting the economy would grow from US$ 67 billion in 2013 to US$ 150 billion by 2020, the Chairman of the Ceylon Chamber of Commerce Suresh Shah earlier this week said the country needed to establish a culture of meritocracy in order to achieve this goal.
The Sri Lanka Economic Association has argued that the prevailing growth trajectory was unsustainable and the country risked getting into a debt trap if foreign direct investments and exports did not increase significantly, making rule of law and institutional integrity crucial factors for success.
Since the end of the conflict the country has registered an average growth rate of 6.6%. But since 2006, the National Mean Household income has grown a mere 0.5%.
www.ceylontoday.lk
No comments:
Post a Comment