Sri Lanka cuts rates, moves to single policy corridor

May 21, 2009 (LBO) – Sri Lanka moved to a single policy rate with an 11.50 percent window with unrestricted accesss, effectively cutting policy rates by 150 basis as inflation fell and the central bank acted to boost credit. The central bank earlier operated a discount or ‘penal reverse repurchase’ window of 13.0 percent with unrestricted access, and another 11.75 percent window which banks and dealers could only access a few times a month. The interbank ceiling overnight rate was then set by the so called ‘penal’ rate. From Wednesday the bank said it would operate a single window at 11.50 percent.

The central bank had also removed restrictions on the ‘repo’ window where banks park excess reserves. The 9.00 percent window had a ceiling of 100 million rupees for each bank.

“With the removal of the restrictions, the Central Bank will conduct its monetary policy operations to maintain inter-bank interest rates stable within the corridor formed by the repurchase and reverse repurchase rates,” the bank said in its May monetary policy announcement.

“Market interest rates have begun to show a gradual decline in response to the relaxation of monetary policy and the measures adopted by the Central Bank to safeguard finan