The Other Side Of Low Interest Rates And Central Bank Sponsored Lending Policies
Dr. W.A. Wijewardena
Sri Lanka’s interest rate cut against IMF warning
The Central Bank cut its lending rates – the rate at which it eliminates the banking system’s excess liquidity known as REPO rate and the rate at which it pumps money to banks known as Reverse REPO rate – by a mega 0.5% in May 2013. Thus, REPO and Reverse REPO now stand at 7% and 9% respectively.
The purpose of this rate cut was, as the Bank had announced is “to stimulate the domestic economy, particularly in the light of the gradual moderation in headline inflation and subdued demand pressures in the economy,” though the IMF had not viewed it in the same tone in its Article IV Consultation Report of May 2013 pertaining to Sri Lanka.
A decline in the whole savings rate structure
