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Inflation to go down further - CB

by Jayantha Sri Nissanka

The Central Bank (CB) expects that inflation would further decline in the second half of 2002 following the reduction of petroleum prices and reduction of prices after implementation of the VAT.

CB officials at a press conference on wednesday said they expect the Commercial Banks to reduce interest rates by 1 % to 3 % following the reduction of overnight Repurchase (Repo) and Reverse Repurchase rates last week. "We want to make downward adjustments to the interest rate structure in order to induce more investments and stimulate economic growth," Director Economic Research Dr.A.G.Karunasena said. Addressing the media at the Central Bank, he said that taking advantage of the downward adjustment in the inflation and stability in the financial market, the CB took a decision to adjust the interest rate structure. "All the short term bank rates are below 13 per cent now", Dr.Karunasena said.

The Central Bank, reduced the overnight repurchase rate and reverse repurchase rate by 100 basis points from 11.50 per cent to 10.50 per cent and from 13.75 per cent to 12.75 per cent last week.

The private sector credit demand would be high due to the slash in the interest rates which will boost investment, he added. Meanwhile, the CB plans to issue a 12 year bond for the first time in the country. The interest rate of this bond could be around or little less than 13 per cent. "We believe insurance companies, provident funds, pension funds, etc will invest in this long term bond," Superintendent of the CB Public Debt Department K.G.D.D. Dheerasinghe said.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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