Rates slump most in a week on positive sentiments after IMF Board approval

• Prime lending rate falls by 204 basis points to settle at 21.74%
• It has fallen cumulative 550 basis points since the end of last year

The market lending rates followed the Treasury yields last week to fall sharply from their previous week levels as investors turned upbeat over the future direction of the Sri Lankan economy after the International Monetary Fund (IMF) unsealed the four-year stabilisation package for the country. 

The prime lending rate fell the most or by 204 basis points last week to settle at 21.74 percent, marking the biggest weekly slump in benchmark lending rates for the shorter term facilities for prime and corporate clientele of commercial banks. The prime lending rate, the bellwether for the rest of the borrowing cost for small business loans, home mortgages, auto loans and consumer loans, has been on a descent this year as the liquidity condition in the rupee market improved while the country was inching closer to the much anticipated IMF facility. 

The benchmark rate has given up a cumulative 550 basis points since the end of last year. 
Analysts expect the rate to fall to between 12 to 15 percent by the end of 2023, providing a much-needed fillip for the businesses and consumers to ramp up their spending. 
Meanwhile, the government securities market also reacted to the IMF deal last week with yields falling across the board. 

At the first bill auction held after the IMF Board approval last week, the bill yields fell sharply by 171 basis points, 122 basis points and 160 basis points for 3 months, 6 months and 12 months bills to settle at 26.23 percent, 26.12 percent and 24.32 percent respectively. 
The three tenors have shed a cumulative 641 basis points, 608 basis points and 495 basis points each since the current streak of declines began in mid-December last year. 

At the auction, the Central Bank raised Rs.125.0 billion and another Rs.31.25 billion at phase II of the auction held the following day.
After nearly a year of economic turmoil, Sri Lanka is now returning to its pre-crisis level economic strength with the inflation on course to its desired range of 4 to 6 percent by the year’s end.