Lower Lending

The Central Bank on Friday cut its key short-term discount rates by 75 basis points, in line with its policy of lowering rates.
The bank lowered the reverse repurchase (reverse repo) rate to 10.25 percent, while the repurchase rate was cut to 8.25 percent.rn

rnThe bank last cut rates by 75 basis points on January 7.rn

rnThe reverse repo-rate is the rate at which primary dealers in treasury bills and commercial banks can obtain overnight funds from the Central Bank by pledging their treasury bill/bond holdings as collateral. rn

rnThe repo-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
quote s main instrument of signalling the expected direction of overall interest rates to the marketrn

rnThe rate cut is in line with market expectations.rn

rnThe Central Bank expects the banks to pass on the benefit to their customers by lowering their lending rates.rn

rnldblquote Such a downward adjustment of interest rates by financial institutions is expected to encourage investments and promote the economic recovery further,
dblquote the bank said in a statement.rn

rnThe bank said the modest economic recovery last year was progressing as expected. rn

rn”Currently available information on production, exports and imports points to a continuation of the economic recovery that commenced in 2002,” the bank said. rn

rn”As projected, inflation has been declining. Market expectations of inflation are also on a downward trend,” it said. rn

rnThe economy is expected to grow by 5.5 percent in 2003, on the back of improved business sentiment and substantial aid from donors to rebuild the economy.rn

rnFollowing an IMF loan, the bank said the country
quote s reserves had picked up to US$ 1.9 bn at the end of April, a level sufficient to cover 3.8 months of imports. rn

rnReserves were at US$ 1.7 bn at the end of 2002. rn

rnThe bank
quote s next regular statement on monetary policy would be made on 13 June 2003. rn