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FC Research projects rate hike in 2H21

17 May 2021

 
  • Hike to prevent overheating economy

  • Expect policy rate easing in this week’s monetary meeting

The First Capital Research projects a rate hike in the second half this year in order to prevent overheating of the economy amidst the given fiscal and monetary stimulus. Nevertheless, the report added that the need to improve the demand for credit, fragile consumer demand recovery and import restrictions can be considered as the major factors favouring easing policy rates at the upcoming meeting which is scheduled this week, according to the research firm. “We believe that CBSL may consider to maintain the same policy stance in this monetary policy review as well, but given the concerns around economic growth, there is a considerable low probability that CBSL is likely to further ease its policy rates.”  “Despite the fact that the third wave may create a temporary slowdown, low interest rates are expected to be a sweetener to propel the demand for private credit in 2021. rejuvenation of the vaccination program and better preparation are expected to bolster the economic sentiment, despite a temporary slowdown expected in 2Q2021,” it added. Private credit, one of the key gauge of the economy, increased by Rs. 112.2 billion in March 2021 recording a growth for the 8th consecutive month indicating a revival in gross loan disbursements. Growth reflects that both businesses and individuals are speeding-up economic activities. CBSL has set a target of 14% to grow private sector credit while YTD credit growth figure of 2.57%, nearly marks an achievement of one quarter of the total credit earmarked for the entire year, indicating that the full year target is within reach. 

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