CB banks on policy changes

Saturday, 12 May 2012 01:33 - - {{hitsCtrl.values.hits}}

The Central Bank expects a deceleration in both monetary aggregates and imports during the course of this year, but insisted that policy measures implemented thus far are sufficient to moderate the expansion of both credit and the trade deficit resulting in rates remaining unchanged, the monetary policy review said.

With respect to monetary developments, market interest rates have moved up gradually, reflecting the tightening of monetary conditions. Benchmark Treasury bill yield rates have increased and in turn, deposit and lending rates of commercial banks as well as other financial institutions have shown an increasing trend, the statement added.

Accordingly, the Central Bank’s repurchase rate will remain at 7.75 per cent while the Reverse Repurchase rate will remain at 9.75 per cent. Meanwhile, banks have been directed to take measures to reduce the growth of loans and advances to a range of 18-23 per cent. Hence, although broad money (M2b) growth was 22.8 per cent, year-on-year, by March 2012, monetary aggregates are expected to decelerate significantly over the balance part of the year, it said.

“On the external front, international oil prices have recently declined and the Brent crude oil price was US$ 112.41 a barrel on 10 May 2012 compared to US$ 120 a barrel, on average, in March 2012. If this dampening of international commodity prices led by the decline in oil prices persists into the forthcoming period, pressure on the domestic foreign exchange market is likely to lessen markedly.”

The expected deceleration in the volumes of imports during the course of the year 2012 following the measures taken by the Government and the Central Bank earlier this year will also significantly reduce pressure on the domestic foreign exchange market, the Central Bank predicted.

The bank was positive about inflation effects and insists that domestic prices will be lower.

“In April 2012, year-on-year inflation as measured by the CCPI (base=2006/2007) was 6.1 per cent while annual average inflation was 5.7 per cent. While inflation continues to remain at single-digit levels, the outlook for domestic food supplies remains favourable, which augurs well for domestic prices in the period ahead. The improvement in the supply of domestic agricultural produce over the last few years has continued to help stabilise domestic consumer prices.”