Sri Lanka’s market interest rates will ease this year as the Central Bank maintains a loose monetary policy stance despite high lending rates and a recent spike in Treasury bill yields, the head of t he monetary authority said yesterday.
Though t he Central Bank surprisingly cut the reverse repurchase rate by 25 basis points to 10.5 percent from three-year highs in December, the average prime lending rates have been hovering around 14 percent.
Yields on Treasury bills reversed their falling trend in March, shooting up between 13-16 basis points (bps) after having declined 99-198 basis points since the rate cut in December.
However, Central Bank Governor Ajith Nivard Cabraal said the spike in T-bill yields was temporary and the market interest rates will decline in future.
“When we say the trend for the (market) interest rates to come down as a result of the long-term trend we are looking at, it will happen,” Cabraal told Reuters, without elaborating the steps the Central Bank has taken to reduce the rates.
However, he did not give a specific time frame for when he thought market rates will start to decline.
“That will happen. People expect these things to happen overnight. When we give a certain direction, it doesn’t mean that it will happen in the next minute. It will go up and come down. But the trend will be in the direction we are suggesting.” Three bankers, speaking oncondition of anonymity, told Reuters that the stubbornly high prime lending rate was due to heavy government borrowing.In December, Cabraal said Sri Lanka’s 2013 monetary policies will be weighted more towards loosening after tightening helped turning around a trade deficit last year.“We have not changed our monetary policy outlook. We haven’t seen anything that has happened to give us any reason to change that.” The Central Bank has been encouraging commercial banks to raise funds from foreign sources to reduce market interest rates.Already state-owned National Savings Bank (NSB) is in the process of raising up to one billion US dollars via an international bond sale.
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