Credit to private sector slips to lowest in Sept – CB

Central Bank said yesterday that credit to private sector has dipped to its lowest level in September so far this year, though statistically the development is very marginal.

Despite this apparent marginal dip, the Bank took comfort by it and made it a point to mention same in its statement following the November monetary policy review.

“As expected, credit to private sector has decelerated in September to its lowest level thus far in 2007 and this decelerating trend is expected to persist during the remaining months, thereby moderating the excessive expansion in the broad money supply,” the Bank said in its statement.

It said that it has thus far been able to achieve its quarterly growth targets for reserve money as well as the indicative target for October 2007.

“The tight monetary policy measures adopted by the Central Bank have helped contain the growth in the money supply, though it still remains above the desired level,” the Bank added.

The Bank also said that with the inflow of US dollars 500 million from the debut international sovereign bond issue, both interest rates and exchange rates have now stabilised.

“The excess liquidity has also been siphoned off through open market operations. In order to neutralise any build up of demand pressures in the economy and curtail the demand driven inflation arising from excess liquidity, the maintenance of liquidity at a desirable level is warranted and therefore, the required steps in this regard would be taken by the Central Bank as and when necessary,” the statement added.

Commenting on the Inflation, the Bank said, as measured by the point to point change in the Colombo Consumers’ Price Index (CCPI) which increased by 17.3 per cent in September, surged to 19.6 per cent led by the high international commodity prices including petroleum prices.
“However, inflation is expected to moderate when the one-off impact of such increases are diminished, supported by domestic supply improvements as well as the continuous containment of demand pressures in the economy through the tight monetary policy stance adopted by the Central Bank,” the statement added.

The Bank also remained upbeat of a 6.7% economic growth in 2007. “The economy, which grew by 6.2 per cent during the first half of the year, is expected to yield an annual growth of around 6.7 per cent for the year.

This growth would be supported by the strong performance in the telecommunications and port services sub-sectors and recovery in the Agriculture sector,” the Bank added.

Exports in September have recorded a growth of 19.2 per cent, benefiting particularly from the impressive performance in the agriculture sector, led by exports of tea.

The rising international commodity prices have caused the import expenditure also to increase compared with the previous month. However, the higher growth in exports over that of imports has led to the narrowing of the trade deficit during the January – September period compared with the same period of 2006, the Bank said.
The release of the next regular statement on monetary policy will be announced in mid December 2007.