CB says market interest rates will decline

Reuters: Sri Lanka’s market interest rates will ease this year as the Central Bank maintains a loose monetary policy stance despite high lending rates and a recent spike in Treasury bill yields, the head of the monetary authority said on Monday.

Though the Central Bank surprisingly cut the reverse repurchase rate by 25 basis points to 10.5% from three-year highs in December, the average prime lending rates have been hovering around 14%.

Yields on Treasury bills have reversed their falling trend in March, shooting up between 13-16 basis points (bps) after having declined 99-198 basis points since the rate cut in December.

However, Central Bank Governor Ajith Nivard Cabraal said the spike in T-bill yields was temporary and market interest rates would decline in future.

“When we say the trend for the (market) interest rates to come down as a result of the long-term trend we are looking at, it will happen,” Cabraal told Reuters, without elaborating the steps the Central Bank has taken to reduce the rates.

However, he did not give a specific timeframe for when he thought market rates would start to decline.

“That will happen. People expect these things to happen overnight. When we give a certain direction, it doesn’t mean that it will happen in the next minute. It will go up and come down. But the trend will be in the direction we are suggesting.”

Three bankers, speaking on condition of anonymity, told Reuters that the stubbornly high prime lending rate was due to heavy Government borrowing.

In December, Cabraal said Sri Lanka’s 2013 monetary policies would be weighted more towards loosening after tightening helped turning around a trade deficit last year.

“We have not changed our monetary policy outlook. We haven't seen anything that has happened to give us any reason to change that.”

The Central Bank has been encouraging commercial banks to raise funds from foreign sources to reduce market interest rates. Already State-owned National Savings Bank (NSB) is in the process of raising up to $1 billion via an international bond sale.
http://www.ft.lk/2013/04/02/cb-says-market-interest-rates-will-decline/

CFVF officers must be busy these days.

Commercial Bank has reduced the interest rate offered on Fixed Deposits by 50 basis points. Against 13.50% offered earlier on a 12-month FD, the rate has today been revised to 13.00%.

Rate decline was on the card. I think this will happen around June July. I read Dr.PB somewhere. If this happens it will be really interesting...

Antonym wrote:Commercial Bank has reduced the interest rate offered on Fixed Deposits by 50 basis points. Against 13.50% offered earlier on a 12-month FD, the rate has today been revised to 13.00%.

Subsequent to my post on Apr 19, Commercial Bank has further reduced their interest rates. (I just noticed, while checking their website.)
They are now offering 12.00% on a 12-month FD. That's a drop of 150 basis points in less than 5 weeks.
HNB & Sampath are also offering similar reduced rates: 12% for a 12-month FD.

Thanks for the highlight.

If interest rate reduced it is really good for the market. But my personal opinion is it can reduce but keep there long time is the challenge. If it can done ASI even can touch 10000.

hafoi 10000

cseguide wrote:If interest rate reduced it is really good for the market. But my personal opinion is it can reduce but keep there long time is the challenge. If it can done ASI even can touch 10000.

The interest rate paid by banks to savers has reduced. The interest rate charged by banks from borrowers has yet to see a significant reduction.

kukumarx wrote:

cseguide wrote:If interest rate reduced it is really good for the market. But my personal opinion is it can reduce but keep there long time is the challenge. If it can done ASI even can touch 10000.

The interest rate paid by banks to savers has reduced. The interest rate charged by banks from borrowers has yet to see a significant reduction.

yes both rates should come down and it should be maintained for minimum one year period.

cseguide wrote:

kukumarx wrote:

cseguide wrote:If interest rate reduced it is really good for the market. But my personal opinion is it can reduce but keep there long time is the challenge. If it can done ASI even can touch 10000.

The interest rate paid by banks to savers has reduced. The interest rate charged by banks from borrowers has yet to see a significant reduction.

yes both rates should come down and it should be maintained for minimum one year period.

That is the general case with every banks friends, when the deposits rates started to go up, they increase the lending rates as well immediately, but for the other way they will take the maximum possible time!

But still their pawning rate is 19% the same as 18 months ago. I even told them it's a real unfair rate.

Antonym wrote:

Antonym wrote:Commercial Bank has reduced the interest rate offered on Fixed Deposits by 50 basis points. Against 13.50% offered earlier on a 12-month FD, the rate has today been revised to 13.00%.

Subsequent to my post on Apr 19, Commercial Bank has further reduced their interest rates. (I just noticed, while checking their website.)
They are now offering 12.00% on a 12-month FD. That's a drop of 150 basis points in less than 5 weeks.
HNB & Sampath are also offering similar reduced rates: 12% for a 12-month FD.

Commercial bank in their 2012 annual report mentioned that to reduce exposure to pawning they are taking some measures. High interest rate is one. It was increased from 13% to 19%. Their assets in pawning have reduced. I see only Commercial bank that has foreseen this issue better than other banks/financials institutes.

Antonym wrote:

Antonym wrote:Commercial Bank has reduced the interest rate offered on Fixed Deposits by 50 basis points. Against 13.50% offered earlier on a 12-month FD, the rate has today been revised to 13.00%.

Subsequent to my post on Apr 19, Commercial Bank has further reduced their interest rates. (I just noticed, while checking their website.)
They are now offering 12.00% on a 12-month FD. That's a drop of 150 basis points in less than 5 weeks.
HNB & Sampath are also offering similar reduced rates: 12% for a 12-month FD.

Commercial Bank has reduced their interest rates, once again, to 10.5% for a 12-month FD.

After a long time, they are offering higher rates for longer duration FDs (e.g. 4 years), which is the normal situation. ('Typically, short-term interest rates are lower than long-term rates.' - Investopedia)
 
On 12-month FDs: Sampath is also at the same level of 10.5%, wheareas HNB is offering 11.0%.

Nowadays, Commercial Bank and many other banks offer only 9.0% interest on a 12-month FD.
Less than one year ago, their rate was 13.5%.
The elderly, and others who survive on FD interest, must be feeling the pinch, no? How will they manage? Any suggestions?

Yeah, the elderly will see the crunch unless they made a wise move in 2012/2013. I told  my related elderly folks so many times in 2012/13 to do the needful. Hope they listened.

Treasury rates have  dipped amazingly low too fast.   Now the rates  must be matching  2010  low  rates

But still lending rates have to come down a lot. Some banks / fins must be making a killing still?

Antonym wrote:Nowadays, Commercial Bank and many other banks offer only 9.0% interest on a 12-month FD.
Less than one year ago, their rate was 13.5%.
The elderly, and others who survive on FD interest, must be feeling the pinch, no?

slstock wrote:Yeah, the elderly will see the crunch unless they made a wise move in 2012/2013. I told  my related elderly folks so many times in 2012/13 to do the needful. Hope they listened.

Treasury rates have  dipped amazingly low too fast.   Now the rates  must be matching  2010  low  rates

But still lending rates have to come down a lot. Some banks / fins must be making a killing still?

Antonym wrote:Nowadays, Commercial Bank and many other banks offer only 9.0% interest on a 12-month FD.
Less than one year ago, their rate was 13.5%.
The elderly, and others who survive on FD interest, must be feeling the pinch, no?

Rates will further come down as it is mentioned in a weekend paper. When the CB rates are down commercial banks tend to adjust their FD rates very quickly but not the lending rates.