July 13, 2009 (LBO) – Sri Lanka’s key reverse repo rate would be held at 11.00 percent while bank lending rates were moving steadily down in response to rate cuts, the Central Bank said in its July monetary policy review.
Foreign hedge funds were putting money back into government securities. In May Sri Lanka’s military defeated Tamil Tiger separatists and wiped out its leadership.
“Given the positive developments in the country, particularly since mid-May, economic activity is expected to pick up during the second half of the year,” the Central Bank said.
“In this regard, the lower interest rate regime would enable a rebounding of private sector activity, underpinning the recovery in the economy.” The Central bank has cut rates by around 800 basis points from its de facto 19.00 percent rate held through a ‘penal’ discount window.
“The gradual reduction in deposit rates has brought down the cost of funds of financial intermediaries, facilitating the subsequent decline in lending rates,” the monetary authority said.
“The Central Bank notes with satisfaction the downturn in the market interest rates and expects financial intermediaries to continue with this trend to further align their deposit and l