Credit to the private sector has been on an upward trend since October 2009, reflecting the gradual recovery of economic activity according to the Central Bank (CB). In the CB’s Monetary Policy Review for April 2010, the CB stated that the declining trend in credit to the private sector which bottomed out in October of last year has since been growing in absolute terms.
It has been aided by the recovery in the global economy, easing of the monetary policy stance as well as increased investor confidence.
Growth in the domestic economy is expected to gain momentum during the year, supported by these favorable conditions.
The Review also stated that the expansion in monetary aggregates has begun to decelerate and that growth in broad money supply, which picked up towards end 2009, has declined to 17.4% by February 2010.
Reserve money has been expanding at a higher rate since the last quarter of 2009.
The expansion has been mainly due to the increase in currency in circulation on account of the two elections held during the early part of 2010 coupled with the seasonal demand for currency.
The CB said it is also monitoring the developments in the money market as excess rupee liquidity continues to remain high.
However, reserve money has begun to contract following the festive period and the CB will continue to closely monitor the movements in monetary aggregates and take appropriate action if necessary.
The Review further notes that the decline in year on year inflation to 6.3% in March 2010 is largely attributable to the reduction in the price of several key food items.
According to the CB, the continued improvement in supply conditions is expected to subdue inflationary pressures. |
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