Prime lending rate touches fresh low

• Weekly AWPLR falls by 35bps to 5.43 hitting new low
• Previous low was 5.54% recorded on Friday, March 12
• Monetary Board last week kept policy rates unchanged signaling commitment to low interest rate regime

The prime lending rate touched a fresh low last week after the Monetary Board said it would maintain the current accommodative monetary policy, reaffirming markets that low interest rates are required to further support the current revival seen in the economy. 

Accordingly, the weekly Average Weighted Prime Lending Rate (AWPLR) fell by 35 basis points to 5.43 percent by the end of last week from the previous week, hitting a fresh low in less than a month. 

The last time AWPLR touched its lowest was in second week of March when the rate came down to 5.54 percent on Friday, March 12, 2021. 

The continuous downtrend in AWPLR signals the market lending rates in the broader economy are settling at the low lower levels although the secondary bond market yields tell a slightly different story. 

“… some upward pressure on yields on government securities was observed recently, in contrast to monetary policy expectations,” the Monetary Board said last week. 

“Thus, the Central Bank reiterates the necessity to maintain the low interest rate structure, amidst the significantly high excess liquidity in the domestic money market, thereby facilitating the take-off of domestic investment,” they added.

The Central Bank injected liquidity amounting to Rs.60 billion from April 1, 2021 through April 8, 2021 taking the outstanding bills and bonds stock held by the monetary authority to Rs.904 billion before 
Friday’s easing. 

The excess liquidity in the overnight money market also rose in tandem by Rs.25.03 billion to Rs.111.36 billion before settling at Rs.106.77 billion on Friday. 

AWPLR is the average rate of all-short term loans granted by banks to their prime customers and the weekly rate captures the average rate of such loans granted during a working week by all licensed commercial banks. 

It’s also the leading indicator of the rest of the market lending rates from pricing the small business loan, to housing mortgage to the personal loan. 

The weekly AWPLR has decline by 38 basis points year-to-date, while the rate has fallen by 431 basis points from the beginning of 2020 when the Monetary Board turned extremely dovish to prop up the economy.