Tuesday, November 7, 2017

Lanka can expect investment to attain desired levels – C B Governor

Governor Dr Indrajit Coomaraswamy speaks at the news conference to announce the Bank’s seventh monetary policy review. Senior Deputy Governor Dr P. Nandalal Weerasinghe and Director, Economic Research, Dr. Y.M. Indraratne look on. Picture by Chinthaka Kumarasinghe

As macroeconomic conditions stabilize and if the Budget is aligned to the government’s Vision 2025, then investor confidence will change for the better and Sri Lanka can expect investment to attain desired levels, while the composition of credit growth too would change, Central Bank Governor Dr Indrajit said yesterday.

He said Sri Lanka can expect a economic growth of 4 - 4.5% for 2017.

The Governor was speaking at the news conference to announce the seventh monetary policy review of the Central Bank, where the Bank chose to keep interest rates steady, as analysts predicted. Dr Coomaraswamy was answering a question as to why credit growth had not seen corresponding investment levels.

“Investor sentiment is bound to change and will have a positive effect on investment, once there is consolidation of the fiscal discipline that has been introduced,” the Governor said, adding that credit to the government had been relatively high in 2017, while in the private sector, credit was been sought by the construction industry.

He said that credit growth peaked to 28% in the middle of last year and the challenge was to bring it down to 15-16% by end 2017.

Dr Coomaraswamy said the real estate sector was segmented. At the lower end was the affordable housing sector which is experiencing heavy demand, at middle level was the property and residential market and at the high end was the luxury apartments market, where Sri Lanka has been witnessing a large inventory. e said there is a boom in this high end luxury apartment market and it may become necessary to undertake macroprudential measures, not for fear of a bubble or overheating in this segment, but to ensure sustained growth, as other countries have also undertaken. Central Bank Senior Deputy Governor P. Nandalal Weerasinghe added that commercial banks will have their own macroprudential measures. He also added that the luxury apartment market peaked about six months ago.

Y-o-Y growth of credit to the private sector decelerated to 17.5% in September 2017, compared to a growth of 18% in August 2017.

In absolute terms, the increase in credit to the private sector in 2017 was Rs 50.1 billion, while the cumulative expansion in credit during the first nine months of 2017 was Rs 454.7 billion compared to Rs 515.8 billion for the corresponding period in 2016.

At the current pace of expansion, the Y-o-Y growth of credit by commercial banks is expected to decelerate to around 15% by end 2017.

Net credit to the government (NCG) from the banking system has declined by Rs 14 billion in 2017. However, so far for 2017, NCG from the banking system has increased by Rs 251.4 billion. The figure for 2016 was Rs 212.6 billion.

Credit to public corporations contracted by Rs 5.4 billion in September 2017. On a cumulative basis credit to public corporations increased by Rs 2.4 billion during the first nine months of 2017 compared to the contraction of Rs 27.9 billion during 2016. See page ii 

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