Inflation seen falling – CB says
View(s):Headline inflation (year-on-year) last month eased to 6.8 per cent from 7.3 per cent in May while core inflation (year-on-year) continued to decrease in the same month to record the lowest figure since its inception, the Central Bank (CB) says.
Headline inflation, is explained in international economic literature, as the measure of inflation that takes into account all types of inflation including food and energy. Core inflation is described by economists as excluding certain items that face volatile price movements. The CB said in a statement this week that core inflation for June was 4.3 per cent, down from 5.7 per cent in May. “Looking ahead, inflation, subject to minimal seasonal variations, is expected to remain at single digit levels for the remainder of the year supported by improved inflation expectations, supply side improvements and the absence of demand driven inflationary pressures,” the banking regulatory said.
The recent reduction of the Statutory Reserve Ratio (SRR) by 200 basis points contributed to the monetary policy relaxation process that commenced in December and provided the financial markets with a further stimulus to support the growth momentum of the economy. As a result, a downward movement was also observed in Treasury yield rates, as well as in the short term lending and deposit rates of major commercial banks. Interest rates for longer term lending facilities for the private sector are also expected to decrease in the ensuing months, the bank added.
Increased inflows to the current account as well as foreign investments in Government securities, inflows to commercial banks and to the equity market supported the improvements of the external stability. In addition, the trade deficit narrowed further while domestic trade also showed signs of improvement, leading to more robust economic prospects for the country. However, as per the revised global economic outlook of the IMF, weaker than expected economic performance in advanced economies may yet prove to be a dampener in revitalising external demand and would need to be watched carefully in the months ahead. Credit to the private sector grew during May as a response to the monetary policy stimulus since December. Private sector credit in May grew to Rs. 18.3 billion from Rs. 7.6 billion in the previous month. As expected, credit to the public sector for May declined by around Rs. 6.2 billion, the bank said.
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