Monetary Board admits market rates have behaved inconsistently
Friday, 17 April 2015 04:46
The Monetary Board has admitted that market rates have behaved inconsistently, raising its own concerns as well as triggering a surprise policy rate cut on Wednesday though the move was linked to stimulating the economy further.
“The current behaviour of market interest rates is viewed to be inconsistent with the continued low inflation and investments needed to address concerns on economic growth for the year,” the Central Bank said following the April monetary policy review meeting.
“Inflation is projected to remain at a low mid-single digit level in 2015. Therefore, there is a further leeway to continue relaxation of monetary policy, primarily through a reduction in policy interest rates of the Central Bank to encourage economic activities by enhanced credit flows and investments due to lower cost of funds and behaviour of market interest rates consistent with economic growth outlook,” the bank said in its statement released on Wednesday.
“If any of the subsequent interim effects of further monetary relaxation are found to be of concern over other economic variables, a mix of other monetary policy tools is available to fine-tune such effects towards achievement of current objectives of the monetary policy,” it added.
At its meeting on Saturday, 11 April, the Monetary Board decided to reduce the policy interest rates by 50 basis points. Accordingly, the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank are reduced to 6.00% and 7.50% respectively with effect from 15 April 2015.
“The monetary policy tool primarily adopted by the Monetary Board will continue to be the policy interest rates announced to the market with the support of other monetary policy tools. The relaxed monetary policy stance will also be pursued in months to come until concerns over inconsistent behaviour of market interest rates are addressed sufficiently to facilitate the economic growth further in a low single digit inflation environment,” the Central Bank added.