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The Central Bank of Sri Lanka has reduced its overnight repurchase (repo) rate from 19 percent to 18.5 percent and its overnight reverse repurchase rate to 21.5 from 22 percent. The Central Bank has reviewed these rates in the context of the evolving market condition to provide stability to the money market and the foreign exchange market, the Bank said in a Press Release. The Repo is the rate at which commercial banks and private dealers could invest their surplus funds in Treasury bills and bonds and the reverse repurchase is the rate at which commercial banks and dealers can obtain funds from the Central Bank against Treasury Bills and Bonds as collateral. The Central Bank's Director Research, Dr. A.G Karunasena said that the increase was brought about due to extreme volatility that prevailed in the Sri Lankan market. He further stated that a common complaint made by many businessmen was that interest rates were high. Mr. Karunasena pointed out that the increasing market stability and improvement in foreign exchange had contributed towards this decision. The Central Bank also said that precautionary measures were introduced in consultation with commercial banks and forex dealers following the introduction of the new exchange rate regime in January this year. The settlement period for export credit has been increased from 90 days to 120 days. The margins for forward exchange contracts have been reduced from 50 per cent to 25 percent. An upward revision has also been made on the limits on daily working balances in foreign currencies held by commercial banks.
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