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| Sunday, 24 November 2002 |
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| News Business Features Editorial
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Central Bank slashes interest rates The Central Bank has reduced interest rates from November 22, considering the continued stability in money and foreign exchange markets, further moderation in inflation and the decline in international market interest rates. The change is also intended to signal a further reduction of lending rates in the market to encourage private sector economic activities. The Central Bank has reduced its Repurchase (Repo) Rate by 75 basis points to 9.75 per cent and its Reverse Repurchase (Reverse Repo) Rate by 100 basis points to 11.75 per cent. The last change in the rates was a 100 basis point reduction on July 26, 2002, a Central Bank news release said. Economic developments since July have warranted a review of these rates. Inflation has been decreasing steadily in 2002.Measured by the 12-month moving average of the Colombo District Consumers' Price Index, inflation, which declined from 10.3 per cent in December 2001 to 8.8 per cent in July 2002, fell further to 7.8 per cent last month. Following the same trend, inflation measured by the Colombo Consumers' Price Index declined from 14.2 per cent in December 2001 to 11.1 per cent in July 2002. It further declined to 9.9 per cent last month. These measures indicate that inflation has declined by 2.5 - 4.3 percentage points this year, depending on the measure of inflation used. Economic activity is gradually picking up from the recession in 2001. The first two quarters of 2002 have recorded increasingly positive growth, in contrast to the economic contraction experienced in the last three quarter of 2001. This growth has to be facilitated by appropriate policies and the Central Bank's gradual reduction of interest rates has been geared towards this end. |
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