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| Sunday, 19 October 2003 |
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| News Business Features Editorial
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Interest rates reduced in light of favourable conditions by Pelham Juriansz The Central Bank's Repo rates were reduced by 50 basis points to seven per cent and its Reverse Repo rate by 100 basis points to 8.5 per cent with effect from October 16. This reduction has been effected as economic conditions have continued to improve during the past few months. The steady decline in inflation and inflationary expectations have resulted in lower interest rates, the Central Bank announced at a news conference last week. The economy is looking quite bright and perky, with a growth rate of 5.5 per cent recorded during the second quarter of 2003, and a 5.6 per cent growth in the first half. Further, the corridor between the Bank's Reverse Repurchase (Reverse Repo) and Repurchase (Repo) rates has been narrowed, to make the width of the corridor more consistent with the current level of interest rates. Economic growth was driven by the industrial and services sectors, as the agriculture sector contracted. During the second quarter of 2003, the industrial sector experienced a significant growth, indicating a recovery and enabling the achievement of a 6.9 per cent growth in the sector in the first half. Higher electricity generation in 2003 and the continued recovery in the manufacturing sector were primarily responsible for this. The significant decline in the inflation rate, as reflected in the downward movement of all measures of inflation, was indeed commendable, the Central Bank said. The annual average of the Colombo District Consumers Price Index fell from 3.5 per cent in August to 3.1 per cent in September, while the annual average growth in the Colombo Consumers' Price Index declined from 7.8 per cent to 7.6 per cent in September. The fall in prices has been driven by the improved agricultural production, reduced pressure from import prices and prudent monetary policy which prevented building up of demand pull inflationary pressure. Another factor that has resulted in a favourable trend is the declining trade deficit. Further, cumulative export earnings during the first seven months of 2003 grew by 18 per cent to US$ 2,871 million, while expenditure on imports during the same period grew by eight per cent to US$ 3,694 million. The rupee depreciated against the US dollar up to June, but has appreciated since then. However, the rupee has depreciated against other major currencies like the Euro, Sterling Pound and Yen. Most major currencies have appreciated against the US dollar. The competitiveness of exports has improved as a result. The Central Bank's policy interest rates have been revised downwards so far in 2003 by 225. The Repo and Reverse Repo rates are at 7.5 per cent and 9.5 per cent respectively. Key stock market indicators show a record performance in 2003. The All Share Price Index, which was at 815 at end-December 2002, crossed the 1,300 mark on October 2, 2003 for the first time since March 1994. The Milanka Price Index, which was at 1,375 in December 2002, had reached 2,524 by October 10, 2003. The next Central Bank statement on monetary policy would be made on November 11, 2003. ***** BoC reduces rates The Bank of Ceylon, in keeping with the Central Bank's policy, announced a reduction in its interest rates last week. The rates, which were over 10 per cent, have now been reduced to 9.85 per cent. The pensioners (Senior Citizens) interest rate of 7.5 per cent has been reduced by 0.25 per cent to 7.25 per cent. The reduction in other interest rates, which is more than two per cent, will also help Small and Medium Enterprises. "We also want to help increase self-employment by this move. This is about the fifth time that the bank cut interest rates. The purpose is to ease the burden for those borrowing money, and they will benefit from the reduced interest rates. Prior to the cuts, which would be effective from November 1, the rates for Senior Citizens were 6.75 per cent for one and two-year deposits, which has now been reduced to 6.5 per cent. We have around five million depositors, almost four per cent of the population," S.N.P. Palihena, General Manager of the bank said. |
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