Moving On

The Central Bank cut its key short-term discount rate by lowering the overnight reverse repurchase rate (reverse repo) by ten basis points to 13.75 percent this morning.
The announcement is in line with the bank
quote s new policy of making regular changes to its key discount rates, to make it more responsive to market developments, a Central Bank official said.

rnThe bank left the repurchase (repo) rate unchanged at 11.50 percent.rnDealers said the Rs. 200 mn shortfall in the overnight call money market had prompted the bank to marginally lower the reverse repo rate today.

rnIn March the bank warned that monetary policy would remain tight, despite periodically shifting its grip on interest rates.

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.

rnrnThe 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 Bank
quote s main instrument of signalling the expected direction of overall interest rates to the market.rnrn