CB keeps policy rates unchanged betting on short-lived COVID-19 outbreak

„ ■ Expects notable recovery in3q economic activities ■ „ Expects expansion in private credit following notable gain in Aug. „ ■ Foreign reserves estimated at US$ 6.7bn as at end-sept.

The Central Bank (CB) kept policy interest rates unchanged at the current levels yesterday with recent pick up in private credit and falling market lending rates while betting on a short-lived COVID-19 outbreak in the country.

Accordingly, CB’S Monetary Board at its meeting held onwednesday decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) at their current levels of 4.50 percent and 5.50 percent respectively, thereby continuing the prevailing accommodative monetary policy stance. However, CB cautioned that the recently emerged unexpected COVID-19 cluster could have an impact on the country’s economic rebound in the near term.

“The unexpected COVID-19 cluster that has emerged recently could somewhat affect this momentum in the near term, but the expeditious measures that are being taken by the government to contain the spread could limit this impact,” it said.

The CB reiterated that it expects a notable recovery in economic activities in the third quarter of the year following the expected larger contraction of economic activities in the second quarter compared to the first quarter of the year.

The Department of Census and Statistics (DCS) recently pushed back the release of the second quarter GDP estimates to December in order to capture certain economic atcivities during t he two-month l ockdown period, which fell within the second quarter.

Citing the unemployment data released by DCS for the second quarter, the CB noted that level of employment remained mostly unchanged in the second quarter, indicating a less than expected significant impact on economic activity.

“As per the DCS, the unemployment rate, which was estimated at 5.7 percent in the first quarter of 2020, has declined to 5.4 percent in the second quarter. The level of employment has also remained broadly unchanged in the second quarter compared to the large decline reported in the first quarter. These suggest that economic activity has remained without much deterioration in the second quarter,” the CB reasoned.

Meanwhile, the CB expects the expansion of credit to the private sector to continue in the period ahead following the notable expansion in August, despite the recent rise in COVID-19 infections.

In August, t he broad money growth also further accelerated driven by private credit and credit to the government and Stateowned enterprises.