9.
CONFIDENTAL
5
Third is
account with the Settlement Bank and pay penal
to be overdrawn in its clearing
rates
of interest at best lending rate for a pre-agreed sum and best lending rate plus three percentage points beyond that sun. This in practice is the most popular but also most expensive alternative, and perhaps rightly so in view of the risks involved in what is basically passive, unsecured lending by the lender.
10.
It is the view of many banks that the scope now exists within which licensed banks can make adjustments to their liquidity positions may be a little restrictive. One contributing factor is the fact that the current practice of monetary operations by the Exchange Fund is to set the availability of interbank liquidity, as measured by the Management Bank's clearing balance held with the Exchange Fund, at
at a fixed level. This level is varied only when there is a need to push interbank interest rates in a particular direction to support the exchange cate. There is до formal arrangement for short term variations in the level in order to cater for changes in the demand for interbank
liquidity, other than the provision of late liquidity assistance, which is not always forthcoming. As a result, when demand conditions do change in response to, for example, month-end effects, or a large
a large share issue, there would be wide fluctuations in interbank interest rates, particularly those at the short end, with consequential adverse effects on the exchange rate.
CONFIDENTIAL
P.8
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