15 March 2021 09:38 am Views - 184
The prime lending rate, which indicates where the broader market lending rates are heading, touched a fresh low last week, a week after the Monetary Board doubled down their commitment for lower rates.
The Average Weighted Prime Lending Rate (AWPLR), a benchmark rate used for pricing short tenor loans to prime customers of banks, fell by 13 basis points through last week to end at 5.54 percent last Friday from the week earlier.
This breaks the previous all-time low of 5.59 percent on February 5, while the excess liquidity in the money market rose from Rs.116.49 billion to Rs.181.38 billion between the periods.
Last week’s fall in the benchmark lending rate brings the year-to-date decline in the AWPLR to 27 basis points (bps), and the rate fell by as much as 420 bps since the beginning of 2020 when the current declining interest rates cycle began.
There were concerns raised by several parties during the last couple of weeks over the ability to sustain the lower interest rates as Treasury bills and bond yields saw some uptick in recent weeks, stoking concerns about inflation making a comeback.
First Capital Research recently advised investors to hold on to their longer-term bonds, as they were uncertain about the yields trajectory, after they forecasted interest rates to rise from the second half of the year with potential increase in key policy rates in the third and the fourth quarters.
But the Central Bank maintained commitment to its dovish stance while illustrating its medium term inflation trajectory, which remains benign.
The Monetary Board doesn’t take decisions based on how the bond market yields behave, but takes a broader and a medium term view of the prices and economic growth, as its rate decisions should not hamper growth, nor overheat the economy.
Sri Lanka has maintained interest rates at their historical lowest levels for the longest period ever, giving a boost to consumer and business spending, as seen from the recent corporate results which hit an all-time high even amid a pandemic.