Standard Chartered rules out rate changes in near term; says domestic economic data improving

Noting that the Central Bank’s decision to keep policy rates unchanged wasn’t a surprise, Standard Chartered Bank said yesterday that it did not expect rate changes in the near term either given concerns about external stability.
“We maintain our view that the CBSL will keep policy rates on hold owing to concerns about external stability, despite lower domestic inflation,” SCB said in its customary Economic Alert following the February monetary policy review.
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SCB said the January inflation of 3.2% y/y was higher than its estimates, owing to higher food prices. “The CBSL expects no significant food price increases from current levels in the near term. We expect the inflation trajectory to remain benign on lower non-food inflation as the impact of price reductions for domestic fuel and essential consumer items is felt from February,” SCB said.
It said domestic economic data is improving. Private credit growth inched up to 8.8% y/y in December 2014, the highest in six months. A classification of credit growth by sector indicates increased credit disbursement to the industrial and services sectors in H2-2014, which augurs well for economic growth.
“Lower yields in mid-2014 resulted in heavy FII outflows of c.$ 410 m from the local GSec market, and the rupee has depreciated 1.4% so far this year. This is particularly negative, given the country’s external debt redemptions of $ 3.5 billion due in 2015 and its high debt-to-GDP ratio of 75% as of December 2014,” SCB added.