Rate Trends

Sept 08, 2010 (LBO) – Sri Lanka’s central bank does not see a need to cut rates next week, following two rates cuts over two months, a media report has suggested. In 2009 private credit shrank as the government ran a deficit of around 10 percent of gross domestic product.

The government has promised to run a smaller deficit in 2010.

In June, the latest month for which data has been published, credit to private sector from commercial banks rose 19 billion rupees to 1,268 billion rupees. “We are confident of a faster upturn in credit growth in the next few months,” Central Bank governor Nivard Cabraal was quoted as saying by Bloomberg newswires.

Over July and August the Central Bank cut its reverse repurchase rate at which money is injected to the market by 75 basis points to 9.0 percent, but Treasuries yields much further along the rate curve is lower.

The 12-month bill yields are fell to 7.42 percent on Wednesday on expectations of another rate cut on September 15.

Its repo rate at which excess liquidity is withdrawn is at 7.25 percent. The reverse repo rate has little effect in the market, as liquidity is generated through a dollar peg