Rate cut likely if private credit remains moderate – Business News

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  • After accelerating in December 2020, private lending slowed considerably in January and is expected to continue until February.
  • ICRA Lanka says if credit growth becomes weak in the first quarter, markets may anticipate policy measures at the next Monetary Policy Committee meeting in April
  • CB wants to increase private credit to 14% or Rs.864bn this year

Rating agency ICRA Lanka yesterday raised the possibility of a further cut in key rates if private credit remains weak in the first quarter, with the central bank appearing to be eager to see its actions turn into faster credit flows to the real economy through low cost loans.

In its regular economic update released each month, ICRA Lanka forecast moderate growth in credit to the private sector continuing through February, after accurately predicting a slowdown in credit flows to individuals and businesses in January 2021. .

“In line with previous expectations of ICRA Lanka, private credit slowed in January. Credit only increased by 26 billion rupees from December 2020, the smallest month-over-month increase since July of last year, ”the rating agency said as growth Credit has weakened since licensed commercial banks granted Rs 76.7 billion in private credit in December. 2020.

“Private credit generally tends to weaken whenever reserve currency growth slows. Therefore, we expect private credit to grow slowly in February as well, ”he added.

The Central Bank wants to increase private credit to 14% or Rs 864 billion this year, which is hardly an ambitious target given historically low lending rates, which are hard to resist.

The Central Bank is continuing discussions with banks to see the possibility of further supporting priority economic sectors through specific lending targets as part of the broader 20% target set for the micro, small and medium-sized enterprises sector in January.

“… if credit growth becomes weak in the first quarter, the CBSL will be in the spotlight, as markets may anticipate policy action at the next Monetary Policy Committee meeting in early April,” the CBSL said. rating agency.

The Central Bank released nearly Rs 900 billion in credit in a single year, as the economy is operating with a significant slowdown, due to five years of under-growth until 2019, caused by bad policies and a decrease in 2020, caused by the pandemic.

In addition, the Central Bank is confident that prices will remain subdued until 2021, a serious caveat that must be addressed when money supply skyrockets in the economy.

“There are no immediate signs of inflation taking off, but rising commodity prices and import restrictions may push prices up in some sectors,” ICRA Lanka said, highlighting moderate inflation expectations.

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