The Central Bank of Sri Lanka reduced its key interest rates on Wednesday.

The Monetary Board decided to lower the penal rate of interest charged on reverse repurchase transactions with the central bank by 175 basis points to 13%. The central bank also reduced its repurchase rate by 125 basis points to 9% in order to encourage commercial banks to lend their surplus funds to customers rather than entering into repurchase agreements with the Central Bank.

Further, the Central Bank of Sri Lanka revised its reserve money targets for the final three quarters of 2009. The targeted growth in annual average reserve money was lowered to 2.8% from 5%.

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