Sri Lanka Cuts Policy Rates. Private Sector Credit to Pick Up

09th July 2010, www.island.lk

The Monetary Board of the Central Bank has brought down policy rates by 0.25 percent and revised annual average growth rates on reserve money to 21.2 percent from an earlier target of 14.5 percent, in a move bank dealers anticipated that would facilitate private sector credit growth and enhance GDP growth.

The Monetary Board has reduced the repurchase and reverse repurchase rates by 0.25 percent each to 7.25 percent and 9.5 percent respectively. The repurchase rate is the rate at which commercial banks deposit excess funds with the Central Bank, while the reverse repurchase rates apply to overnight borrowings of the banking system from the Central Bank.

"We were expecting this reduction to policy rates even though some analysts had been concerned about rising inflation. When policy rates come down, Treasury bill rates and bank rates come down and this would help the government bring down the budget deficit as interest costs come down," a commercial bank dealer said speaking to The Island.