Market interest rates seen responding to policy rate cut faster than earlier

• AWPLR falls 16bps during week ended July 17, in response to 100bps policy cut on July 9
• Decline in AWPLR an indication that lending rates in broader market also on descent
• CB-appointed committee meets daily to iron out issues in Monetary policy transmission process 

The market interest rates were seen responding to the most recent policy rate cut faster than earlier, as the Central Bank continues to push for adjustments in the bank lending rates while a committee meets daily to monitor and iron out any issues in the transmission process. 

The Average Weighted Prime Lending Rate (AWPLR), the rate often used as a benchmark to price loans to prime customers of banks, fell by 16 basis points during the week ended July 17, in response to the 100-basis-point policy rate cut on July 9.

The AWPLR is now at 7.95 percent, down from 8.11 percent a week earlier. Last week’s decline in the AWPLR brings the total decline in the benchmark rate up to 179 basis points, 
from January 3.

This corresponds with the 250-basis-point cut in the key policy rates since the beginning of the year. 

Some of the banks, whose AWPLR held stubbornly at elevated levels, were seen responding to the most recent policy rate cut, the data from banks showed, as they are mandated to weekly report their prime lending rates to the Central Bank.       

  
While there is typically a lag in the transmission of the monetary policy decisions such as the key policy rate reductions, the Monetary Board and Central Bank officials expressed qualms about the delay in the flow, mostly in the rates offered for SMEs reflected through the Average Weighted New Lending Rate (AWNLR) and Average Weighted Lending Rate (AWLR).

However, the faster response in the prime lending rate is a leading indicator that the lending rates in the broader market are also on descent, the inquiries made on SME term loans by the banks showed, as industry data has not been updated after May. 

The internal committee, which now meets on a daily basis, works on addressing the delays in the monetary policy transmission flow and expediting the credit flow to the real economy. 
Meanwhile, the yields of government securities have shown that the government borrowing cost has significantly fallen, in response to the policy easing. 

The 364-day treasury bill rate, a benchmark for short-term borrowing needs of the government, responded by falling by 41 basis points to 4.91 percent, at the first auction held last week, after the monetary policy was announced the week earlier. 

The year-to-date fall in the 364-day treasury bill rate is 354 basis points.