Staying Put

Despite seven year lows and pressure on the rupee, the Central Bank kept its key short-term interest rates unchanged.
The overnight repurchase rate (repo rate) was kept at 7.0 percent and the reverse repurchase rate (reverse repo) at 8.50 percent, the bank said in a statement following its monthly Monetary Policy Meeting late Tuesday.rn

rnThough some of its counterparts in developed economies have been progressively hiking rates to cool consumer spending in the backdrop of rising oil prices, the bank has not shifted its stance for fear stoking inflation.rn

rnThe repo-rate or the repurchase 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). rn

rnIt is also the Central Banks main instrument of signaling the expected direction of overall interest rates to the market.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

rnrnThe next monetary policy review is scheduled for August 13.rn

-LBO Newsdesk: LBOEmail@vanguardlanka.comrn

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