State Bank decides not to change policy rate
The State Bank has decided not to change the policy rate. It will remain at 7% and the interest rates banks charge on car or house loans will also mostly remain the same.
The interest rates banks charge on loans depends on the State Bank’s policy rate. Also called the interest rate, it is a tool used by the central bank to keep inflation in check.
The Monetary Policy Committee has decided to keep the policy rate the same as economic growth and the inflation outlook remain unchanged.
While the rise in recent COVID-19 cases creates new risks, news emerging about vaccines being developed is encouraging, the committee noted. However, it has been noted that it could take a long time for the vaccines to come into the commercial market.
Inflation has seen an upward tick due to rising food prices. These are supply-side pressures, likely to be temporary, which will see average inflation eventually fall to the previously announced range of seven to nine percent for fiscal year 2021. Collectively, these risks in regards to growth and inflation appear balanced.
“Recent data suggests a further strengthening and broadening of the recovery observed since July, led by construction and manufacturing,” the monetary policy statement said.
“Sale of fast moving consumer goods rebounded in the first quarter of fiscal year 2021. Average sale volumes of petroleum products and automobiles have surpassed their pre-COVID levels and cement sales are at an all-time high. Large scale manufacturing continues to rebound, expanding by 4.8%, against a contraction of 5.5% in the same quarter last year.”
It also noted that nine out of 15 major manufacturing sectors have shown gains, including textiles, food and beverages, petroleum products, paper and board, pharmaceuticals, chemicals, cement, fertilizer, and rubber products.
The committee noted that the recovery was being supported by packages provided by the government, the round of policy rate cuts and the State Bank’s timely measures to mitigate the impact of the COVID pandemic.