Sri Lanka central bank says to take further measures to cut lending rates
ECONOMYNEXT – Sri Lanka’s central bank said it will take further appropriate measures to ensure lending rates will fall, especially for small businesses, with previous actions having already led to lower borrowing costs.
“The Central Bank expects lending rates of banks and Non-Bank Financial Institutions (NBFIs) to reduce further in the immediate future, and borrowers, particularly SMEs (small and medium enterprises), can expect to obtain credit facilities at reduced interest rates from banks and NBFIs,” a statement said.
“The Central Bank will closely monitor the behaviour of bank interest rates and take further measures as appropriate in future to support economic growth given well contained inflationary pressures.”
It said measures were being taken to reduce lending rates and drive credit flows to the SME sector.
The Average Weighted Prime Lending Rate of licensed commercial banks has reduced by 127 basis points from 12.24 percent as at 26 April 2019 to 10.97 percent as at 12 July 2019 in response to previous measures.
“Commencing 01 July 2019, the Central Bank further revised the reference rates applicable on deposits of banks and NBFIs for the 03rd quarter of 2019, and the maximum interest rates that can be offered on savings and fixed deposits have reduced further by 50 basis points and 171 basis points, respectively, thereby reducing the cost of funds of banks and NBFIs.”
The Central Bank requested licensed banks and Non-Bank Financial Institutions to reduce interest rates on deposits with effect from 29 April 2019.
“This measure was taken to accelerate monetary policy transmission through the financial sector, enabling licensed banks to reduce their interest rates on lending products in general, and to SMEs in particular, and thereby enhance credit flows to the real economy,” the statement said.
“Accordingly, interest rates on savings and other deposits with tenures less than 3 months offered by licensed banks and NBFIs were based on the Standing Deposit Facility Rate (SDFR) whilst longer tenures were based on the 364 day Treasury bill rate.”
The Central Bank has also injected substantial rupee liquidity to the domestic market by reducing the Statutory Reserve Ratio (SRR).
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It has also further reduced the policy interest rates by 50 basis points on 31 May 2019 which is directly reflected in the corresponding reduction in SDFR-linked interest rates of savings deposits.
Commencing 01 July 2019, the Central Bank further revised the reference rates applicable on deposits of banks and NBFIs for the 03rd quarter of 2019.
Maximum interest rates that can be offered on savings and fixed deposits have reduced further by 50 basis points and 171 basis points, respectively, reducing the cost of funds of banks and NBFIs.
(COLOMBO, 18 July, 2019)
Economic Intelligence Unit of the Ceylon Chamber of Commerce
Jehan Perera - Executive Director National Peace Council