Inflation drops in June

Headline inflation (year-on-year) for June 2013 eased to 6.8 percent from 7.3 percent in May 2013. Core inflation (year-on-year) continued to decrease in June 2013 to record the lowest figure since its inception. Core inflation for June was 4.3 percent, down from 5.7 percent in May 2013.

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.

In the meantime, the recent reduction of the Statutory Reserve Ratio (SRR) by 200 basis points contributed to the monetary policy relaxation process that commenced in December 2012 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, and 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.

Increased inflows to the current account and 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.

Credit to the private sector grew during May 2013. Private sector credit in May 2013 picked up to record an absolute increase of Rs. 18.3 billion from Rs. 7.6 billion in the previous month.