The Monetary Board of the Central Bank (CB) on Wednesday decided to reduce the Penal rate of interest charged on reverse repurchase transactions with the CB by 175 basis points to 13%. According to the Monetary Policy Review for April 2009, the CB stated that the decision was taken in view that its monetary policy stance should be eased further given the continuing decline in the general price level and the demanding conditions facing the real sector.
The Monetary Board has further decided to reduce its Repurchase rate by 125 basis points to 9% in order to encourage commercial banks to lend their surplus funds to customers rather than entering into repurchase agreements with the CB. Both these measures are to take effect immediately. The CB said it expects these measures to result in more active lending by commercial banks supported by a reduction in their lending rates in accordance with the reduction in policy rates, thereby augmenting credit flows to the economy.
The CB has also decided to revise its reserve money targets for the last three quarters of the year given the lower than expected inflation, moderation of growth prospects and the downward revision in the Statutory Reserve Ratio (SRR) in February 2009.
Accordingly, the targeted growth in annual reserve money has been brought down to 2.8% from 5%. The revised reserve money targets for the second, third and fourth quarters of 2009 are Rs.285.5 billion, Rs.295.2 billion and Rs.308.8 billion respectively.
According to the Monetary Policy Review, the expansion in the money supply has decelerated to 9.9% together with a sharp deceleration in credit to the private sector to 5.6% by February 2009. |
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