The Central Bank cut its key short-term rates on Thursday, signalling that the economy was getting stronger.rnrn
The bank lowered its overnight repurchase rate (repo rate) by 50 basis points to 7.0 percent.rn
rnThe reverse repurchase rate (reverse repo) was cut by 100 basis points to 8.50 percent, the bank said in a statement following its monthly Monetary Policy Meeting late Wednesday.rn
rnThe market was expecting the rate cut ahead of next Mondays 20-year treasury bond auction. The bank hopes to raise Rs. 1 bn through this issue.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
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).
It is also the Central Banks main instrument of signalling the expected direction of overall interest rates to the market.rn
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