Short-term lending rates on decline as prime rate falls for second straight week

Ending the months-long ascent to multi-year highs, the prime lending rate set off to a declining path this month, in a potential sign of a broader decline in the market
lending rates.

However, it’s still too early to conclude that the current descent, which began only two weeks ago, would last long, given the still persistent risks to the economy.  The weekly market interest rates showed that the average weighted prime lending rate for the week ended on January 20 declined 39 basis points to settle at 27.54 percent. Before that, the benchmark short-term lending rates gave up 14 basis points in the second week of January, coming down 
from a peak. 

The prime lending rate is the benchmark interest rate used by the banks when they price their short-term loans, mostly less than a year, for their prime customers, mostly consisting of rated corporates. 
However, the changes in the prime rate offer a leading indicator for where the rates in the rest of the economy could be headed. 

The Central Bank turned tough earlier this month by restricting the commercial banks’ access to its standing facility windows, in a bid to reactivate the interbank money market and thereby putting downward pressure on the market rates. A growing chorus of calls demand the Central Bank to cut rates to support the economy, which has seen the worst decline since the country’s independence.