By:Staff WriterColombo (LNW): The Central Bank forecasted a notable rise in private sector credit growth, commencing from the final quarter of 2023 boosted by the simultaneous relaxation of lending rates and an overall improvement in economic conditions.
“With seasonal demand, we could see further expansion in credit flow in November and December, setting the stage for a robust start to the upcoming year,” he told journalists yesterday, Central Bank Governor Nandalal Weerasinghe said
Weerasinghe acknowledged a modest recovery in private sector credit growth thus far, expressing optimism for a more pronounced upturn as interest rates continue to descend.
He emphasised a shift in approach, noting; “The current trend is not merely to acquire more credit, but rather to recalibrate the financial cost.
As lending rates decline further, we anticipate a surge in investments and consumption. This attests to the responsiveness of our monetary policy,.”he added.
He underlined that this development is poised to curtail contraction and steer the economic trajectory towards a positive territory.
The financial sector is encouraged to promptly and effectively transmit the advantages of the ongoing relaxation of monetary conditions to individuals and businesses particularly, those engaged in industries and SMEs.
In absolute terms, the credit to the private sector has increased to Rs 7,098 billion in August from Rs. 7,093 billion a month ago.
The central bank in its monetary policy statement acknowledged that “a noteworthy recovery” in the private sector credit growth is yet to be observed.
Weerasinghe said the credit growth has been responsive to the policy rate reduction, thus will become positive in the current quarter.
“We have already seen a small recovery. I think most probably the recovery is slower when people are expecting the interest rates to come down further.
There, the tendency is not to get the new credit, but still trying to reprice their obligations and bring down the financing cost. That is what’s happening right now,” he told reporters in Colombo at a media briefing.
He said “But, once the interest rates are settled to a certain level and also economic activity picking up, then we are going to see people going to start increased investments, more consumptions.
‘With that the credit flow will turnaround. It shows credit recovery, and the monetary policy is responsive,” he pointed out.
Sri Lanka’s economic growth has been contracting since the first quarter of 2022 amid an economic and debt crisis that forced the country to declare bankruptcy in April last year.
Private sector firms have been in a risk averse mood in the economic contraction and mostly avoiding any expansion at an expensive borrowing cost.