Central Bank of Sri Lanka: No Rate Change

June 18, 2014

Between December 2012 and October 2013, Sri Lankan monetary authorities implemented three cuts in their key lending and deposit rates totaling 125 basis points.  In January of this year, there was a further 50-basis point reduction of the lending rate, which with an unchanged deposit rate narrowed the reverse repo of 8.0% versus repo rate of 6.5% differential to 150 basis points.  Today’s decision to leave those rates unchanged was made against the backdrop of ample growth of 7.5-8% and a 27-month low of 3.2% inflation.  But nothing’s ever perfect, and an accompanying statement laments that private domestic credit isn’t expanding faster and blames commercial banks for not passing on the January policy easing.

the Central Bank is of the firm view that the banks now have adequate space to reduce market lending rates further to encourage the private sector to demand credit from the banking sector, while also tightening the spread between lending and deposit rates of banks to a more reasonable level. Accordingly, the Monetary Board also decided to urge banks to lower their market lending rates in order to reflect these changing circumstances.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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