The overnight call market rate for interbank borrowings without collateral edged up to 10.75 percent on Monday while the market repo rate for borrowings backed by government securities stayed flat at 9.50 percent, one of the highest ranges since the thirty year conflict ended in May 2009.
At the beginning of this year the call market rate was 9.40 percent while the market repo rate was 8.35 percent.
On May 19, 2009 a day after the end of the conflict was announced, these rates stood at 11.50 percent and 10.99 percent, but ended the year at 8.85 percent and 8.60 percent.
Both these rates had been quoted around the 7 percent mark last year.
"The glaring fact about the Colombo bourse is that the large deals have held the market up as overall investor participation levels remained poor due to the high interest rates prevailing. We continue to advise our investors to capitalize on the major slow down and accumulate on the value and growth stocks," Softlogic Equity Research said on Monday.
As at last Monday, the Colombo bourse has falled 18.46 percent since the beginning of this year, while the Milanka Price Index of more liquid stocks was down 15.78 percent.
The All Share Price Index dipped marginally on Monday to 4,952.93 points, down 0.26 percent from the previous close. The S&P SL20 closed a quarter of a percent lower at 2,810.37 points while the Milanka Price Index gained 0.48 percent to close at 4,404.16 points. Turnover was the lowest since April 2009 at Rs. 91.65 million.
The Central Bank is following a tight monetary policy stance in a bid to contain credit growth, which was unexpectedly high last year which led to a balance of payments crisis as credit fuelled import demand and the exchange rate was sustained at an artificial rate.
Inflation reached a three year high in June, 9.3 percent, and the IMF has urged the Central Bank to maintain a tight monetary policy stance given the expectations that inflation could near 10 percent by the year’s end.
Rising interest rates have also added pressure on the government’s fiscal operations.
The budget deficit for the first four months of this year has already reached 3.8 percent of GDP. The target for the full year is 6.2 percent.