With the liquidity of local banks increasing greatly by now, instead of providing loans to the public at lower interest rates they have made it a practice to deposit their excess money with the Central Bank of Sri Lanka (CBSL) under the Standing Deposit Facility which earns an interest rate of 6.50 percent.

While identifying this process as an obstacle to the economic progress of Sri Lanka the Central Bank of Sri Lanka has drawn up policies to discourage this practice.

Accordingly, with its Monetary Policy Review of September the CBSL has stated the interest rates for the commercial banks’ excess liquidity deposited with the CBSL would be reduced till further notice.

Hence, from 23 September when a commercial bank deposits its excess liquidity with the CBSL the 6.50 percent interest would be paid only thrice within a month. Only an interest of 5.00 percent would be paid from the fourth time.

While speaking to Adaderanabiz.lk, CBSL Deputy Governor Dr. Nandalal Weerasinghe said, “This step has been taken to discourage the current practice of commercial banks depositing their excess liquidity with the CBSL and obtaining interests and to make these funds be used productively for the economic development process of the country. Currently, the banks deposit their excess liquidity with the CBSL and gain an interest of 6.50 percent.”

The CBSL states that though it had continued to relax its monetary policies since recent times the state of the loans provided to the private sector in Sri Lanka by the commercial banks have remained ordinary.

The CBSL’s policy interest rates remain unchanged in September as well.