Sri Lanka left its key interest rates unchanged for the fifth consecutive month as the Central Bank looks for signs that inflation may slow as global oil prices ease. Sri Lanka left its key interest rates unchanged for the fifth consecutive month as the Central Bank looks for signs that inflation may slow as global oil prices ease. Sri Lanka’s Central Bank kept its repurchase rate, at which it drains money from the banking system, at 7.5 percent, and its reverse-repurchase rate at 9.0 percent after its five- member policy board met late Tue.
The bank last raised rates by 50 basis points in November 2004.
The bank said it is comfortable in maintaining rates at their current levels and will “continue conducting open market operations more aggressively to mop up excess liquidity from the market and contain the growth of reserve money to targeted levels through a planned programme of permitting the market to subscribe to the maturing Treasury bill holdings of the Central Bank.”
The 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). It is also the Central Bank’s main instrument of signalling the expected direction of overall interest rates to the market.
The repo window acts as the lender at last resort for commercial banks for their trading activities, backed by their government security holdings.
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