ECONOMYNEXT – Sri Lanka’s central bank has set interest ceilings for bank deposits for the quarter ending June 30, on a base rates for short term deposits at 8.0 percent and longer term rates of 10.54 percent.
Sri Lanka took an unprecedented step of ordering price controls on deposits to lower costs and boost margins of banks, making a regulator-driven oligopsony out of a sector where there used to be strong competition.
No ceilings have been set on lending rates.
The price ceiling for savings and term deposits below three months is 7.50 percent or 50 basis points below the standing deposit facility rate (repo window) of the Central Bank.
The base rate for deposits over 3 months is the simple average of the weighted average yield of 12 month Treasury bills at the last four auctions of the first quarter of 2019.
The base rate for deposits below three months is the 8.00 percent standing deposit facility rate (repo window) of the Central Bank.
Deposits below 12-months are controlled at 10.54 percent.
Deposits between 1 and two years are controlled at 11.54 percent (T-bill plus 100 basis points).
Deposits between 2 and 3 years are controlled at 12.04 percent (T-bill plus 150 basis points).
Deposits between 3 and 5 years are controlled at 12.54 percent (T-bill plus 200 basis points).
Deposits of 5 years or more 13.04 percent (T-bill rate + 250 basis points)
No distinction has been made on the risk rating of individual banks.
The Central Bank said when interim interest is paid, the annual effective rate should be below the price control.
But kids with a deposit of 1 year or more, or senior citizens could be 50 basis points higher than the price control. (Colombo/Apr30/2019-SB).