Private credit will pick up in 2H: CB

Tuesday, 20 May 2014 00:30 - - {{hitsCtrl.values.hits}}

Credit growth to be on the expected path through 2016, says Cabraal
Fall in gold pawning results in sluggish credit growth
Central Bank not unduly concerned over low private credit
February private credit growth at lowest since May 2010

Reuters: Sri Lanka’s private sector credit growth will pick up to around 15% by the end of this year and continue to improve through 2016, the Central Bank Governor said on Monday amid concerns over sluggish loan growth. The $ 67 billion economy’s private sector credit grew 4.4% year-on-year in February, the slowest expansion since May 2010, data showed.

That compared with growth of 5.2% in January and 13.3% in February 2013. The Central Bank has aimed for 14% private sector credit growth by end 2014 and 15% next year to spur economic growth to 7.8% this year and 8.2% in 2015. Central Bank Governor Ajith Nivard Cabraal said the sluggish growth was mainly due to a slowdown in credit linked to gold pawning after a sharp fall in gold prices. “That issue has now been addressed by banks, and in the meantime, credit to other sectors has been picking up. Hence, we are not unduly concerned,” Cabraal told Reuters ahead of the central bank’s monetary policy announcement on Tuesday. “We expect credit growth to be at the expected levels in the second half and to continue on the expected path over the next couple of years. Such credit growth of around 15% per annum will be sufficient to deliver around 7 to 8% real economic growth with inflation also stabilizing within mid single digits,” he said. Credit growth slowed to 7.5% by end 2013, much lower than the targeted 18.5% despite the central bank slashing its key monetary policy rates by 125 basis points between December 2012 and October last year to boost economic growth. The Central Bank is widely expected to keep key rates unchanged on Tuesday. Some banks and currency dealers say that despite multi-year low policy rates they do not see much demand for imports and borrowing for investments, as consumer spending is declining due to higher taxes and lower disposable income. The country’s imports also have been on a declining trend, data showed. Although credit growth was slow, economic growth picked up to 7.3% in 2013 from a three-year low of 6.3% in the previous year, thanks for massive state-led infrastructure projects started after the end of a 26-year civil war in 2009. Lending rates against gold under pawning increased by 116 basis points to 18.67% by end 2013 from a year earlier, reflecting increased risk of pawning-related lending following a decline in international gold prices during the year. That hit the growth in pawning-related loans, which fell 13.7% to Rs. 292.9 billion ($ 2.25 billion) in 2013 compared to the previous year. Sri Lankan authorities took strong measures including a 10% tax on gold imports to prevent overseas purchases by traders looking to take advantage of a favourable price arbitrage with top consumer India.

CB seen keeping key rates at multiyear lows

Reuters: The Central Bank is expected to keep its key policy rates steady on Tuesday for the fourth straight month, a Reuters poll of 13 analysts showed, after slashing them to multiyear lows to boost the country’s economic growth. The Central Bank has cut the repurchase rate by 125 basis points (bps) and reverse repurchase rate by 175 bps since December 2012 to stimulate economic growth, which picked up to 7.3% last year from 6.3% in the previous year. The Central Bank has estimated the $67 billion economy will grow 7.8% this year.