Losing Interest

Dilshan Wirasekara, Chief Executive Officer of First Capital Treasuries PLC

The Central Bank on Friday cut key interest rates by 75 basis points on Friday.
The bank lowered the Reverse Repurchase Rate to 10.25%, while the Repurchase Rate was cut to 8.25%. The bank last cut rates by 75 basis points on January 7.rn

rnThe Reverse Repo-rate is the rate at which Primary Dealers in Treasury Bills and commercial banks obtain overnight funds, from the Central Bank, by pledging their Treasury Bill or 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.rn

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

rnThe rate cut is in line with market expectations. The Central Bank expects the banks to pass on the benefit to their customers by lowering their lending rates. (LBR)rn