In response to CB monetary policy:
Market rates decline
Market interest rates continued to adjust downwards in response to
the monetary policy measures taken by the Central Bank in the recent
past. The benchmark yield curve for government securities trading in the
secondary market has also continued to move downwards and has become
flatter in the recent months, reflecting the prevailing low inflation
and the favourable outlook for inflation. Other market interest rates
have, in turn, decreased. Nevertheless, it has been noted that
adjustments to lending rates of financial institutions generally tend to
lag behind the adjustments to their cost of funds. It is expected that
market lending rates would decline further in the period ahead, to fully
reflect the recent relaxation of the monetary policy stance of the
Central Bank.
In response to the improving credit conditions, credit flows to the
private sector continue to increase. By July 2010, credit obtained by
the private sector from commercial banks recorded a year-on-year
increase of 8.9 percent. Credit disbursed by licensed commercial banks,
licensed specialized banks and registered finance companies, together,
recorded a year-on-year increase of 9.9 percent, in July 2010. Credit
flows to the private sector are expected to increase further in the
period ahead, given that Sri Lanka's economy is poised to grow by an
encouraging 7.5 to 8.0 percent in 2010, following the GDP growth of 7.8
percent in the first half of 2010.
The Monetary Board, at its meeting held on September 21, has decided
to maintain the policy interest rates of the Central Bank unchanged at
their current levels. Accordingly, the Repurchase rate and the Reverse
Repurchase rate of the Central Bank would remain at 7.25 percent and
9.00 percent, respectively. |