Rate Cut

The Central Bank on Friday cut key short-term rates by 100 basis points in line with the bank
quote s new policy of making regular changes to its key discount rates, to make it more responsive to market needs.
As reported by LBO Thursday, the bank lowered the reverse repurchase rate (reverse repo) to 12.75 percent and the repurchase rate (repo) to 10.50 percent.

rnThe reverse repo-rate or the overnight reverse repurchase 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.

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).

rnIt is also the Central Bank
quote s main instrument of signalling the expected direction of overall interest rates to the market.rn