Government borrowed more money than private sector in Jan-Apr 2013 : CB
View(s):Commercial banks have responded swiftly to last month’s cut in interest rates by the Central Bank (CB) while a fresh announced on Friday (June 7) by CB Governor Nivard Cabraal of further cuts in rates would see the market reacting once again, analysts and CB officials said.Last month the CB reduced policy rates by 50 basis points which it said, in a monthly statement at the weekend of monetary policy, has already been reflected on the deposit rates of major commercial banks, while the average weighted call money rate and the average weighted prime lending rate have also moved downwards.
“It is expected that the easing of monetary policy since December 2012 would transmit smoothly to the lending rates in the near future, thereby stimulating a sustained increase in longer term credit growth to the private sector, thus contributing to a higher level of economic activity, over the coming months,” the CB statement said. On June 7, the Governor, speaking at a special event to release the Finance Ministry’s 2012 annual report, said interest rates would further come down to stimulate economic activity.
The CB said year-on-year broad money (M2b) growth moderated further in April to 15.2 per cent from 15.6 per cent in the previous month. Consequently, overall monetary expansion continues at the levels expected in the Monetary Programme for the year.
“Within the overall monetary expansion, the public sector has absorbed greater portion of domestic credit, in comparison to the credit extended to the private sector by commercial banks during the first four months of the year,” it said.
On a year-on-year basis, the growth of credit to the private sector has decelerated to 10.2 per cent in April 2013 from 10.9 per cent in the previous month, partly reflecting the effect of the high base. At the same time, during the year 2013, a compositional shift of credit disbursements by commercial banks is considered likely, with the expected easing in public sector borrowing during the remainder of the year and the adjustment of market lending rates, which would provide the required boost to the longer term credit growth to the private sector.
During the year, the CB said it absorbed around US$580 million from the domestic foreign exchange market on a net basis, supported by increased earnings from trade in services, workers’ remittances and investment inflows. These developments have resulted in the gross official reserves increasing to $6.9 billion by end April, which is equivalent to 4.4 months of imports, with the rupee strengthening against major currencies during the year.
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