Sri Lanka Central Bank to Cut the Cost of Borrowing for Private Sector

30th September 2009, www.thebottomline.lk

Central Bank last week sent a strong signal to the commercial banking industry that cost of borrowing for private sector must come down further on the strength of the fact that rates for Government debt has reached a single dighit.

The yields at the Treasury bill primary auction held on September 23, 2009 declined to a single digit level of 9.70 per cent for three months Treasury bills for the first time after November 2005.

With this reduction, primary market yield rates of the Treasury bills have declined by 763 – 795 bps during the year 2009. The primary market yield rates of Treasury bonds also followed the same trend and declined by up to 956 bps, Central Bank said.
The decline in yields is witnessed in all maturity classes of Government securities extending up to the 10 year maturity horizon. This reduction in yield rates is in line with the gradual easing of the monetary policy stance by the Central Bank of Sri Lanka and increased foreign investor participation in the Government securities market.

“In line with these developments, a reduction in the entire interest rate structure in the economy, including the lending rates of the commercial banks is expected,” Central Bank said in a statement.