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Video- Legal action can be taken if banks do not reduce interest rates: Central Bank Governor

July, 17, 2014

EXCLUSIVE:: The Central Bank of Sri Lanka (CBSL) has the authority to resort to legal action if commercial banks do not further reduce their interest rates in line with the stipulated rates, said the Central Bank Governor.

During an exclusive interview with AdaderanaBiz.lk, Cenrtal Bank Governor Ajith Nivard Cabraal said a recent survey conducted by the Central Bank has revealed that commercial banks could further reduce their interest rates.

Under these circumstance, the Central Bank had twice requested the commercial banks to reduce their interest rates and several banks had already responded and done so, said the Central Bank Governor.

Though the CBSL has the authority to take legal action against commercial banks which do not respond to such requests and reduce interest rates, he hopes such a situation does not arise, added Nivard Cabraal.

He also pointed out that interest rates could only be reduced to a certain extent so as to maintain a balance between the deposit and lending interests.

Economic analysts point out that Sri Lanka is prominent as a country with a high bank interest margin. While the difference between the interests rates of deposits and loans is considered the interest margin, while this is around 1.7 percent in Hong Kong, it remains as high as 4.3percent in Sri Lanka.

The Monetary Board recently decided to keep the CBSL interest rates which in turn decide the commercial banks’ interest rates unchanged in July as 6.50 to 8.00 percent and requested the commercial banks to further reduce their interest rates.