Heightened business activity coupled with aggressive growth in financial industry prompted an unprecedented rise in private credit, stimulated not only by corporate sector but also by growth in agriculture, SME and consumer financing. The demand pressures from both public and private sector manifested themselves in rising inflationary pressures in the first half of 2005.
Recognizing the lingering impact of past few years’ easy monetary policy and the emergent demand pressures, the central bank now for almost 18 months has adopted a tight monetary policy stance. Combination of rise in policy discount rate twice, rise in reserve ratios and proactive open market operations together have helped effective liquidity management. Inflationary pressures have come down significantly.