Sri Lanka banks, finance companies ordered to cut deposit rates
ECONOMYNEXT – Sri Lanka’s Central Bank has ordered banks and finance companies to cut deposit rates, saying statutory reserve ratios have been cut and inflation is low and it will help lower lending rates.
Deposits of three months or less will be linked to the standing deposit facility rate of the Central Bank which is now at 8.00 percent, and longer term rates to the 12-month Treasury bill yield.
"Through the above measures, that would reduce excessive cost of funds borne by the financial sector, the Central Bank expects the lending rates to reduce by around 200 basis points to SMEs in the near term," the regulator said in a statement.
"The reduction in SRR by 250 basis points in two steps in November 2018 and March 2019 has already reduced cost of funds and is expected to result in a narrower margin between deposit and lending rates.
"The Central Bank will closely monitor the behaviour of interest rates of licensed banks and NBFIs on both deposits and loans and take further measures as appropriate in future."
Commercial Banks may offer additional interest of up to 50 basis points for children’s savings and for fixed deposits of 12 months or more.
"In spite of these measures, interest rates on deposits are expected to remain competitive, providing a substantial real return to depositors," the Central Bank said.
The rupee however fell steeply in 2018. (Colombo/Apr29/2019-SB)
Kithmina Hewage- Institute of Policy Studies