The Monetary Board has observed in recent months that the credit extended to the private sector by commercial banks has remained modest in spite of the continued easing of monetary policy, resulting in the accumulation of a large amount of excess liquidity in the domestic money market.
Accordingly, the commercial banks will be limited to current SDF Rate of 6.50 percent to a maximum of three times per calendar month, and any deposits at the SDF window exceeding three times by an OMO participant to be accepted at a reduced interest rate of 5.00 percent per annum, the Central Bank said in its Monetary Policy Review for September 2014.
"The Monetary Board is of the view that the above measures would actively encourage commercial banks to utilize the substantial amounts of excess liquidity to enhance the flow of bank credit to the private sector at more reasonable interest rates, and thereby support the growth momentum of the economy, given the low inflation environment," the statement said.
The measure will be effective from September 23, until further notice.
For the remainder of the month of September 2014, access to OMO at the SDFR will be limited to twice per participant.
The Central Bank will also suspend the daily auction facility with effect from today until further notice.
The Reverse Repurchase Rate or the Standing Lending Facility Rate (SLFR) will remain unchanged at 8.00 per cent.
The Central Bank noted that the economy performed strongly during the second quarter of 2014 with a real GDP growth of 7.8 percent compared to the 7.6 percent recorded in the first quarter of 2014.
The growth of 7.7 percent in the first half of 2014 augurs well in meeting the expectations for the year, the Bank said.
Inflation continued to remain low in single digit levels at 3.5 in August and a core inflation of 3.9 percent.
The monetary authority expects the recent reduction of fuel and electricity tariffs by the government would be reflected in next month's price levels and accordingly, inflation is projected to remain at around 3-4 percent by end year.
