Sri Lanka lending rates to ease with lower state borrowing: Central Bank

June 7, 2013 (LBO) – Sri Lanka’s bank lending rates are expected to ease in the second half of 2013 with reduced bank borrowings by the state, the Central Bank said holding policy rates in June, after a cut last month. In May the monetary authority cut its policy rate corridor by 50 basis points.

The reverse repo rate at which money is given to banks for liquidity shortfalls and indicates a ceiling overnight rate in the interbank market was cut to 9.00 percent and the repo rate at which excess money is withdrawn was cut to 7.00 percent.

Liquidity auction rates at which cash was withdrawn and injected have ranged from 7.8 percent to 8.2 since a May rate cut forming a narrower effective signal rate corridor.

This week a repo auction rate fell to 7.6 percent, amid excess liquidity dragging down short term rates further.

The longer term rates however has been high mostly due to state borrowings to bridge a budget deficit and borrowings from state banks by loss making state enterprises.

“Within the overall monetary expansion, the public sector has absorbed a
greater portion of domestic credit, in comparison to the credit extended to the private sector by commercial banks during the first four mon