Early signs of a gradual easing of excessive market interest rates have been observed recently in response to the administrative measures adopted by the Central Bank, along with the improvements in domestic money market liquidity and overall sentiments in the domestic markets.
Central Bank said that recent measures adopted by them to reduce the overreliance of licensed commercial banks on the standing facilities of the Central Bank and the concurrent conduct of open market operations helped improve liquidity in the domestic money market.
This prompted activity in the interbank money market. Improved liquidity conditions, along with improved investor sentiment on the anticipation of “financing assurances” from official creditors, led to a notable moderation in the yields on government securities recently, reflecting the easing of the high risk premia attached to government securities.
Meanwhile, the market deposit rates have also shown a notable moderation, benefiting from improved liquidity conditions. These developments are expected to pave the way for an easing of excessive market interest rates in the period ahead.
Nevertheless, outstanding credit extended to the private sector by commercial banks continued to contract in response to the tight monetary conditions and the moderation in economic activity. Monetary expansion also moderated from peak levels, albeit at a slower pace.
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