Low interest regime induces more borrowings
Following the reduction in policy rates of the Central Bank in April 2015, market interest rates have adjusted downwards as expected.
The continuation of the low interest rate regime has induced demand for bank credit from the private sector,the Central Bank said.
Accordingly, credit obtained by the private sector from commercial banks increased by 13.9 per cent in March 2015 on a year-on-year basis. In absolute value terms, the increase during the month was Rs. 41.4 billion, raising the cumulative increase in credit to the private sector by commercial banks to Rs. 86.9 billion in the first quarter of 2015.
As per the Quarterly Survey of Commercial Banks' Loans and Advances to the Private Sector, the sustained expansion in credit was driven mainly by credit flows to the Industry and the Services sectors.
Given continued low market interest rates, it is projected that private sector credit would increase further in the period ahead supporting the growth momentum of the economy.
As a result of increased credit flows to both private and public sectors, broad money (M2b) grew by 12.5 per cent in March 2015 on a year-on-year basis, along the expected path for monetary expansion.