Key Central Bank statement on Jan 2 on economic and fiscal expectations
View(s):A broad guidance of economic and fiscal policies relating to interest rates trends, banking developments, the inflation scenario and GDP growth prospects for 2014 will be spelled out in the Central Bank Road Map: Monetary and Financial Sector Policies fo 2014 and beyond, to be announced on January 2.
Also included will be guidelines on mergers and acquisitions, an issue that was dealt with in the November budget with particular focus on development and small banks, according to the Central Bank (CB). Meanwhile in a statement issued last week on the monetary policy for December, the CB said several noteworthy, positive macroeconomic developments were reported in November indicating that the monetary policy decisions implemented throughout 2013 were ‘timely and appropriate’.
Real GDP growth accelerated in the third quarter of 2013. Inflation reduced significantly to levels lower than anticipated, while the external sector showed further progress, the bank said.
The turnaround in the financial position of key public corporations prompted substantial repayments by these institutions to the banking sector, facilitating an increased flow of financial resources for private investment. Credit extended to the private sector by banks picked up strongly in October. These factors augur well for future economic growth, while continued downward adjustments to longer term market interest rates would bolster market confidence and nurture positive investor sentiments, the CB statement noted.
“All key sectors of the economy contributed positively to the real GDP growth of 7.8 per cent in the third quarter of 2013. The agriculture sector grew by 7 per cent recovering from the contraction observed in the second quarter. Industry grew by 8.1 per cent reflecting a moderation from the higher growth rates observed in the first two quarters of the year, while the services sector growth accelerated to 7.9 per cent from 6.6 per cent in the previous quarter. The sound, broad based growth performance in the third quarter strengthens expectations of over 7 per cent economic growth for the year, the Bank noted.
Headline inflation decreased to 5.6 per cent in November on a year-on-year (y-o-y) basis, from 6.7 per cent in the previous month, mainly on account of the moderation in prices of both food and non-food items during the month. In the meantime, core inflation continued to decline, and was at its lowest at 2.4 per cent (y-o-y), in November. Annual average headline inflation also declined to 7.3 per cent in November from 7.6 per cent in the previous month. “The outlook for inflation continues to remain favourable supported by subdued international commodity prices, improved domestic supply conditions and well contained demand driven inflationary pressures. In this background, according to current projections, inflation is expected to remain benign, at mid-single digit levels throughout 2014 as well,” it said.
In October, credit extended to the private sector increased by Rs. 27.2 billion in absolute terms. Credit from Domestic Banking Units (DBUs) of commercial banks contributed around Rs. 20.1 billion to the absolute increase in credit during the month, similar to the levels witnessed in September 2013, signalling a take-off in credit disbursements.
Credit granted to public corporations contracted for the second consecutive month, with repayments during October amounting to Rs. 12.5 billion.