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Interbank borrowing rates spiked early on Monday as rupee liquidity continued to be tightened with the Central Bank selling dollars to keep the exchange rate stable, dealer said. Interest rates are under pressure and indicative lending rates to top customers of the banking system have now entered double-digit figures.
The average weighted prime lending rate (AWPR) of the banking system was 10.55 percent last week, the Central Bank said.
This rate applies to credit granted to high net-worth individuals and institutions, where as ordinary borrowers would have to pay back loans at a much higher rate.
"The fact that the AWPR is now at double-digit levels is an indication that borrowing rates have increased quite a bit as the defence of the dollar peg causes repercussions in the rupee market," a dealer said.
A year ago, the AWPR was at 9.14 percent. It was 11.06 percent during the same period in 2009.
Economists have pointed out that it would be impossible to keep inflation and interest rates low and maintain a strong exchange rate at the same time. The Central Bank has decided that it was better to protect the exchange rate which is under severe import pressure, and this has caused rupee interest rates to rise.
Overnight interbank lending rates spiked to 9 ¼ percent yesterday before settling down to 8 ¾ percent after the Central Bank injected liquidity into the system through a reverse repurchase auction at 7.76 percent, dealers said.
The rupee closed at Rs. 113.89/90 against the dollar yesterday and the Central Bank sold US$ 50 million to keep the exchange rate stable.
Reuters said yesterday that the Central Bank had sold US$490 million since the 3 percent devaluation on November 21.
The Island Financial Review reported yesterday that US$ 1.1 billion had been sold in three months to maintain the dollar peg.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=41522
The average weighted prime lending rate (AWPR) of the banking system was 10.55 percent last week, the Central Bank said.
This rate applies to credit granted to high net-worth individuals and institutions, where as ordinary borrowers would have to pay back loans at a much higher rate.
"The fact that the AWPR is now at double-digit levels is an indication that borrowing rates have increased quite a bit as the defence of the dollar peg causes repercussions in the rupee market," a dealer said.
A year ago, the AWPR was at 9.14 percent. It was 11.06 percent during the same period in 2009.
Economists have pointed out that it would be impossible to keep inflation and interest rates low and maintain a strong exchange rate at the same time. The Central Bank has decided that it was better to protect the exchange rate which is under severe import pressure, and this has caused rupee interest rates to rise.
Overnight interbank lending rates spiked to 9 ¼ percent yesterday before settling down to 8 ¾ percent after the Central Bank injected liquidity into the system through a reverse repurchase auction at 7.76 percent, dealers said.
The rupee closed at Rs. 113.89/90 against the dollar yesterday and the Central Bank sold US$ 50 million to keep the exchange rate stable.
Reuters said yesterday that the Central Bank had sold US$490 million since the 3 percent devaluation on November 21.
The Island Financial Review reported yesterday that US$ 1.1 billion had been sold in three months to maintain the dollar peg.
http://island.lk/index.php?page_cat=article-details&page=article-details&code_title=41522
