In its quarterly meeting held on 18th December 2009 at the NBR headquarters, the NBR Monetary Policy Committee (MPC) decided to revise downward the central bank policy rate, known as the “Key Repo Rate” (KRR), from 9% to 7.5%.
In the current macro-economic environment characterized by a stable and low inflation, estimated at around 6% in December 2009 on annual basis, as well as the increasing liquidity in the banking system, this reduction of the KRR aims at improving the credit conditions to the economy.
The NBR monetary policy objective remains to maintain the price stability, while stimulating domestic savings by keeping positive interest rates in real terms and encouraging private sector investments, for a higher economic growth. The current MPC decision is in line with this objective, as the revised KRR remains positive in real terms.
The Central Bank expectations from this decision are:
1. A reduction in the cost of funds for commercial banks
2. Increase in credit to the economy assuming that the reduction in cost of funds will be transmitted in credit markets by lowering bank’s lending rates.