We are pressurizing banks to cut rates – CBSL chief

July, 9, 2020

The Central Bank of Sri Lanka today (09) stated that they are pressurizing banks to pass on the rate cuts to borrowers without any further delay.

The CBSL’s monetary board at its meeting held on 08 July 2020, decided to further reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 100 basis points each, to 4.50% and 5.50%, respectively. But the CBSL expressed its “disappointment” that market rates had not followed the Central Bank rates down.

“ We are looking at how to address this issue. Currently, there is a committee appointed within the Central Bank officials to find out what is happening. What prevents them from extending loans as determined by the Central Bank. Why they're not responding adequately to interest rate cuts and why they're not giving loans as permitted by the improved liquidity conditions. This committee is daily looking into it and I think in the time to come with our pressure taking effect there will be some improvement in the conditions,” Central Bank Governor Prof. W. D. Lakshman told media whilst addressing the monetary policy meeting in Colombo.

Meanwhile, Senior Deputy Governor of the Central Bank Dr. Nandalal Weerasinghe also expressed the following.

"If you look at the rate reduction, so far the prime lending rate has come down almost by the same margin of our rate reduction of 150 basis points (BPS). So, the prime lending rates, Treasury bill rates all have come down more than what we have reduced. What is not coming down basically is the normal SME lending rates. It has not come down and also new lending rates to other border categories. I think one of the reasons for this is that the credits given to those sectors were very low compared to what was given earlier. So, the volumes are also very low. That is one reason. The second reason is that the banks are saying that their committed deposit rates at higher rates or the cost of funds; basically the new pricing of the cost of funds will take some time. So, that adjustment will take time for a larger category of borrowers.  Those are the two reasons and currently, we are pushing banks to pass the benefits as soon as possible. Specially in this kind of circumstance, I think people will borrow at lower rates," he said.