Central Bank leaves its short-term interest rates intact, though warns of possible downside economic risk following the recent tsunami

Sri Lanka’s Central Bank opted not to tinker with its short-term interest rates for the second consecutive month, though there may be some downside risks on economic performance this year due to the recent tsunami. The bank said its overnight repurchase (repo) and reverse repurchase (reverse repo) rates will remain at 7.5 percent and 9.0 percent respectively, following the monthly monetary policy meeting late Monday.

The bank raised rates by 0.5 percent last November.

The repo-rate or the repurchase rate is the key benchmark, which sets the floor in the overnight call money market, as it enables lenders to invest excess funds in treasury bills and bonds held by the Central Bank (i.e. at near zero risk). It is also the Central Bank’s main instrument of signalling the expected direction of overall interest rates to the market.

The repo window acts as the lender at last resort for commercial banks for their trading activities, backed by their government security holdings.

The bank said it was comfortable with 2004 economic performance. “Projections for 2005 expect a continuation of these favourable developments, although there are some possible downside risks.”

-LBO Newsdesk: LBOEmail@vanguardlanka.com

Sri Lanka’s Central Bank opted not to tinker with its short-term interest rates for the second consecutive month, though there may be some downside risks on economic performance this year due to the recent tsunami.