The Central Bank yesterday directed all banks to reduce their lending rates in parallel with its reduced market interest rates. A statement issued today by the Central Bank said though it has eased its monetary policy stance by reducing the policy rates since February 2009, the country's banks are yet to show full downward adjustment in their rates.

"The banks' lending rates have also declined with a time lag, but are yet to show full downward adjustment," the Central Bank said. The Central Bank has requested all banks to take appropriate measures to reduce interest rates by end of October 2010.

Interest rates on housing loans are to be capped at 14 percent per year while the Bank has set a ceiling of 24 percent per year for interest rates on credit card advances.
Interest rates on other loans and advances are required to be lowered by another 1-2 percent per year.

The monetary authority says the current macro economic performance and stability warrant a reduction in the risk premium added to lending rates by the banks. The move would contract the gap between lending rates and deposit rates.

Since 2009, the Central Bank has eased the Repurchase rate and the Reverse Repurchase rate by 325 basis points and 300 basis points, respectively. Currently, the Repurchase rate is 7.25 percent and the Reverse Repurchase rate is 9.00 percent.