Private sector borrowing dip persists

Private sector borrowing from the banking sector continued its dip in April amidst the prevalent high interest rate regime and contraction in the economy.

As per the Central Bank data, outstanding credit extended to the private sector declined by Rs. 43.2 billion in April 2023 to Rs. 7.1 trillion.

Credit to the private sector from the banking sector has been decelerating since June 2022 with the biggest drop of Rs. 107.6 billion in March due to high interest rate environment and downturn in the economy according to analysts.

As at December 2022 the outstanding amount was Rs. 7,426 billion (a peak of Rs. 7.6 trillion in August) as against Rs. 6,981 billion in 2021.

However the Central Bank said last week that the credit to the private sector is expected to gradually increase with the easing of monetary conditions and rebound in economic activity.

On Thursday the CBSL announced a 250 basis points reduction in policy rates, the first downward revision in nearly three years.

The Monetary Board had underscored the need for a quicker pass-through of the benefit of the relaxed monetary policy stance to the stakeholders of the economy. “The financial institutions, led by LCBs, are expected to adjust the market interest rates swiftly in line with the changes in the policy interest rates,” the CBSL added.