Turnaround in inflation
Year-on-year inflation remained unchanged at 9.8 percent in February
2013 reflecting the remaining impact of the substantial changes to
administratively determined prices and disruptions to domestic food
supplies.
However, inflation is expected to turnaround from March 2013 and
reach a more favourable level by the end of the year. Inflation has been
at single digits over the past 49 months and the positive outlook for
inflation is expected to continue, supported by well-contained demand
and favourable domestic and global supply conditions.
Such moderation of inflation is also expected to offset the upward
inflationary pressure of expected revisions to administered prices.
Credit extended to the private sector continued to decelerate further
recording a growth of 15.5 percent (year-on-year) in January 2013 from
the peak growth of 35.2 percent in March 2012, indicating that the
relaxation of monetary policy in December 2012 is yet to be reflected in
bank lending.
However, the increase in credit obtained by the public sector in
January caused broad money (M2b) to expand by 18.3 percent in January
2013, higher than the 17.6 percent growth that was recorded in December
2012. The expansion in broad money in January indicates that aggregate
demand of the economy is adequate to support a continued growth
momentum.At the same time, with the expected price adjustments in the
energy sector, state-owned enterprises would be able to reduce their
reliance on bank financing, resulting in the release of additional
resources for the private sector.
That outcome would, in turn, enable the private sector to enhance its
level of investment in order to expand economic activity through the use
of improved physical infrastructure that has been put in place by the
Government in recent times.
In the meantime, it has been a matter of some concern that two months
after relaxing monetary policy, interest rates pertaining to both
deposit and lending interest rates still remain high.
However, following recent discussions that the Central Bank had with
leading commercial banks, it is anticipated that both deposit rates and
lending rates will be adjusted in the near term, in line with the
direction of monetary policy.
When such adjustment takes place, it is expected to stimulate private
sector economic activity towards the growth targets for 2013.
So far during the year, the balance of payments has continued to
record a surplus, and a comfortable overall surplus is anticipated in
2013. In fact, although the Central Bank has purchased US $ 486 million
on a net basis from the market this year, greater stability of the
exchange rate has been observed owing to increased foreign exchange
inflows to the government securities market, and from tourism and
private transfers.
Considering the above, the Monetary Board at its meeting held on
March 7, was of the view that the current monetary policy stance was
appropriate, and accordingly, the Monetary Board decided to maintain the
Repurchase rate and the Reverse Repurchase rate of the Central Bank
unchanged at 7.50 percent and 9.50 percent. The date for the release of
the next regular statement on monetary policy will be notified in due
course.
|