Inter bank lending rate up sharply

Sharp increases in inter bank interest rates has at times, reached as high as 40%, money market dealers said.

With record high inflation rates contributing to the soaring interest rates, this is an effort by the Central Bank to quietly but forcefully trim down credit expansion. Dealers said the CB's tactic is to decrease the amount of credit in the market but it seems as though banks are still facing shortages when it comes to funds.

Senior Deputy General Manager of Finance & Planning at Commercial Bank, Ranjith Samaranayake told The Sunday Times FT that the objective of the CB is to ensure price stability and contain inflation, thereby making it necessary for them to take various policy steps in this regard.

Samaranayake also said that during April 2007, 'liquidity was under pressure', mainly due to the festive season where people were making withdrawals more frequently than they would during any other given time.