Prime lending rate falls sharply

The prime rate fell sharply, despite the Central Bank half-heartedly raising the key policy rates by 100 basis points, reflecting that the most recent policy move is entirely symbolic and has no real impact on the markets.

 The prime lending rate, the benchmark rate used to price loans to top-tier borrowers and also provides direction for the rest of the markets from home mortgages, small business loans to consumer loans, fell by 71 basis points to 22.74 percent last week, adding to the 76-basis-point decline in the week before. 

The behaviour in the weekly prime rate reflects the sentiments in the financial markets and provides for the future trajectory in rates.  With last week’s sharp decline, the prime rate has given up 450 basis points since the end of last year, when the rate was at 27.24 percent. 

Analysts project the prime rate to fall to a range between 12 to 15 percent by the year’s end, as the rates would follow inflation and thus the ease in financial conditions, after nearly one-half years of ultra-tight monetary policy.