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Rising debt service could push interest rates up
– CB
The Central Bank has warned that the rising debt service could hike
interest rates above already high levels.
“The rising public debt service obligations could exert an
upward pressure on interest rates in the future,” the bank
said last week in its release of the Financial System Stability
Review. “However, the debt management strategy being implemented
to extend the maturity profile of public debt should help to contain
the problem,” it added.
With regard to credit growth the bank said it has been decelerating,
although it is still high, in response to policy measures.
“This is beneficial for maintaining financial stability, as
it will dampen inflationary pressures and reduce the likelihood
of an increase in credit risk in banks.
In addition to tightening monetary policy, the Central Bank introduced
several prudential requirements to curtail bank lending for consumption
purposes and to mitigate the risks associated with this type of
lending (especially through credit cards).
These measures include the imposition of general provisioning and
the increase in risk weights on consumption lending,” the bank
said.
The banking sector continued to be profitable and sound. Banks were
able to survive in the rising interest rate environment by re-pricing
deposit and loan rates, thereby maintaining their profitability.
The report noted that capital funds of banks have increased demonstrating
higher risk absorptive capacity. The asset quality of banks and
provisioning levels too have increased, indicating greater resilience.
“However, there are some areas where risks could build-up.
In its overall assessment the Central Bank said that the outlook
for financial system stability remains favourable, although external
and domestic risks have increased.
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