Central Bank of Sri Lanka mulls rupee lending rate deregulation

Media reports claimed this citing Dr. Nandalal Weerasinghe, governor of the central bank, who highlighted the efficacy of the price control order issued earlier in August 2023, noting its role in reducing the overall market lending interest rates.

However, he emphasised that with the economy’s normalisation and further monetary policy easing, the order’s relevance has diminished even as Dr. Weerasinghe stressed the transition towards market-based instruments.

He expressed satisfaction with the current interest rate levels, anticipating further reductions.

Drastic measures are urged upon financial institutions to swiftly decrease market lending interest rates, ensuring businesses and households benefit from the monetary policy easing.

The Monetary Policy Board decided to lower the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) by 50 basis points to 8.50 per cent and 9.50 per cent, respectively.

This decision, reached recently, aims to sustain inflation at 5 per cent over the medium term while fostering economic growth.

Factors considered include subdued aggregate demand, favourable inflation dynamics, anchored inflation expectations, and manageable external sector pressures.

Despite a modest 4.5 per cent year-on-year growth in the fourth quarter of 2023, the board anticipates prolonged economic sluggishness, with limited upside risks to inflation.

Emphasising the prompt transmission of monetary easing to lending rates, the board underscored the importance of normalising market interest rates.

Additionally, restrictions on the Standing Deposit Facility (SDF) usage will also be lifted from April 1, 2024, to enhance market-based transmission of monetary policy adjustments.

Fibre2Fashion News Desk (DR)