Mar 21,2014 (LBO) - Sri Lanka is holding a policy rate corridor at 6.5 to 8.0 percent, the Central Bank said amid benign credit growth and inflation. Credit to government had expanded by 68.3 billion rupees in January 2014 but the proceeds of a sovereign bond sold in January is expected to have reduced credit to the state in February.
Credit to private sector has grown 5.2 percent in the year to January 2014, from 7.5 percent in December 2013 mostly due to falling gold-backed loans and repayments of short-term advances by companies.
Credit to state owned enterprises have also contracted in January the Central Bank said. SOE credit surged in December. There had been concerns that higher thermal power generation amid a drought could worsen the finances of SOEs, which improved over the last year.
Lower credit growth reduces inflationary pressures and imports and the trade deficit contracts as deposits outpace loans in the banking system.
It also allows the Central Bank to rebuild foreign reserves lost during a balance of payments crisis triggered by credit bubbles.
The Central Bank said gross official foreign reserves rose to 8.0 billion US dollars in January 2013, which was equal to 5.3 months worth of imports.
Exports grew 23.2 percent in January 2013 from a year earlier while imports grew 7.9 percent allowing the trade deficit to contract to 756 million US dollars in the month, the Central Bank said.
Any increase in exports will increase imports by the same amount shortly after either through direct spending by the recipients of export proceeds (such as apparel factory workers) or when their savings in banks are loaned to others, except when credit is weak.
Trade deficits are caused by spending of proceeds of foreign exchange inflows outside merchandise exports such as worker remittances (exports of labour) and net government borrowings (exports of government debt).
Consumer prices were up 4.2 percent during the 12-months to February 2014, compared to 4.4 percent in January.
"Looking ahead, inflation is expected to remain at mid single digits throughout 2014," the Central Bank said in its March monetary policy review.
"Although the outlook for inflation remains encouraging from a demand perspective, the Central Bank will continue to closely monitor possible supply disruptions resulting from the drought conditions experienced in certain parts of the country."
Analysts say any so-called 'supply shock' from drought will only trigger a temporary rise in prices and not inflation, which is a monetary phenomenon, unless such supply shocks are accommodated by the Central Bank, through credit from the banking system.
In 2011 a drought which reduced hydro power generated was accommodated by the banking credit which eventually saw the rupee falling to 130 from 100 to the US dollar and a surge in inflation.
The rate setting 'monetary board' expected credit to private sector to "rebound from the second quarter of the year, supported by declining market lending rates, sufficient liquidity levels and increased demand for exports from the advanced economies."
The state statistics office said Sri Lanka's economy has grown 8.2 percent in the last quarter of 2013.
Related News:
http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20140321e.pdf
Credit to private sector has grown 5.2 percent in the year to January 2014, from 7.5 percent in December 2013 mostly due to falling gold-backed loans and repayments of short-term advances by companies.
Credit to state owned enterprises have also contracted in January the Central Bank said. SOE credit surged in December. There had been concerns that higher thermal power generation amid a drought could worsen the finances of SOEs, which improved over the last year.
Lower credit growth reduces inflationary pressures and imports and the trade deficit contracts as deposits outpace loans in the banking system.
It also allows the Central Bank to rebuild foreign reserves lost during a balance of payments crisis triggered by credit bubbles.
The Central Bank said gross official foreign reserves rose to 8.0 billion US dollars in January 2013, which was equal to 5.3 months worth of imports.
Exports grew 23.2 percent in January 2013 from a year earlier while imports grew 7.9 percent allowing the trade deficit to contract to 756 million US dollars in the month, the Central Bank said.
Any increase in exports will increase imports by the same amount shortly after either through direct spending by the recipients of export proceeds (such as apparel factory workers) or when their savings in banks are loaned to others, except when credit is weak.
Trade deficits are caused by spending of proceeds of foreign exchange inflows outside merchandise exports such as worker remittances (exports of labour) and net government borrowings (exports of government debt).
Consumer prices were up 4.2 percent during the 12-months to February 2014, compared to 4.4 percent in January.
"Looking ahead, inflation is expected to remain at mid single digits throughout 2014," the Central Bank said in its March monetary policy review.
"Although the outlook for inflation remains encouraging from a demand perspective, the Central Bank will continue to closely monitor possible supply disruptions resulting from the drought conditions experienced in certain parts of the country."
Analysts say any so-called 'supply shock' from drought will only trigger a temporary rise in prices and not inflation, which is a monetary phenomenon, unless such supply shocks are accommodated by the Central Bank, through credit from the banking system.
In 2011 a drought which reduced hydro power generated was accommodated by the banking credit which eventually saw the rupee falling to 130 from 100 to the US dollar and a surge in inflation.
The rate setting 'monetary board' expected credit to private sector to "rebound from the second quarter of the year, supported by declining market lending rates, sufficient liquidity levels and increased demand for exports from the advanced economies."
The state statistics office said Sri Lanka's economy has grown 8.2 percent in the last quarter of 2013.
Related News:
http://www.cbsl.gov.lk/pics_n_docs/latest_news/press_20140321e.pdf
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