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Sri Lanka cuts bank rate 500bp to 10-pct, to be linked to ceiling policy rate

ECONOMYNEXT – Sri Lanka has cut the bank rate, the final lender of last resort facility available to banks that face runs, to 10 percent from 15 percent, to bring it line with current policy rates, the central bank said.

Sri Lanka’s central bank last cut the bank rate to 15 percent from 18 percent in 2003.

The central bank said in the future the bank rate will move in line with the policy rate and be 300 basis points above the standing lending facility rate, which is the ceiling rate.

In the 1980s and early 1990 Sri Lanka used to monetize debt at high level and inflation and currency depreciation was steep, triggering high interest rates.

Greater monetary stability was seen from around 2000 to 2011. Monetary stability weakened from around 2012 and has deteriorated sharply from 2015 analysts say.


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