Sri Lanka promises price controls if bank lending rate do not fall

ECONOMYNEXT – Sri Lanka will slap price controls on lending if rates do not fall quickly, Central Bank Governor Indrajit Coomaraswamy said.

He said controls have already been put on deposit rates and banks have to follow.

It took time for bank costs to fall, as old deposits had to be replaced with new deposits at lower rates, but the central bank was ready to control lending rates as well, if loan rates do not fall, he said.

Average deposit rates have fallen about 259 basis points, officials said.

Deputy Governor Nandalal Weerasinghe, said the deposit rate controls were not placed for banks to get bigger profits, but to pass it on to borrowers.

The central bank therefore expected banks to follow, he said.

Governor Coomaraswamy said controlling rates was not the best option but the central bank had now resolved to do so, if rates do not fall.

Critics have said Sri Lanka has high nominal rates due to monetary instability coming from an inconsistent soft-pegged regime. Sri Lanka’s rupee is once again under pressure despite weak credit.

Countries stable pegs backed by consistent policy or fully floating rates tend to have low interest and inflation rates. (Colombo/Aug23/2019)