Low interest rates a welcome move

by Lalin FERNANDOPULLE

The Business community welcomed the move made by the government to slash interest rates on loans from State Banks in a bid to stimulate the economy and encourage more private sector investments.

The State Banks offer development oriented interest rates in the range of 8 to 12 per cent in accordance with the country’s inflation rate. This move was mooted by the President to boost the economy on a long-term basis.

Senior Banker and Financial Consultant, Mangala Boyagoda said to stimulate economic growth a long-term low interest rate is vital and there should be a program to sustain it.

“A short-term move will not be viable for an investment as it could only encourage trading,” Boyagoda said.

“Sri Lankans depend on interest rates and if banks slash interest rates on savings and deposits the purchasing power could decline” he said.

The performance of the Stock Market has increased due to positive investor confidence. The drop in corporate profits will result in low dividends for investment which will hamper investment growth.

Stock Market analysts said that foreign investors will merely benefit by the move to bring down interest rates on borrowing. The cost of income ratio will increase and affects productivity in corporates.

Senior Lecturer, Faculty of Management and Finance, University of Colombo, Prof. H.D. Karunaratne said, the low interest rate regime will be ideal to enhance private sector investment for development and encourage SME sector entrepreneurs to have access to funding.

“Private sector investment growth will bring more employment and business opportunities to help expedite economic growth”, he said.

“Creating a low interest rate environment alone is not sufficient. Institutional structure has to be changed to direct people to move out of bank deposits to more viable and long-term investments such as the Stock Market, corporate bonds, Treasury Bills and Treasury bonds”, Prof. Karunaratne said.

The Immediate Past President Federation of Chamber of Commerce and Industry of Sri Lanka Navaz Rajabdeen said the Chamber welcomes the decision to reduce borrowing interest rates from State Banks which help increase productivity and businesses to compete better in the market.

“The move will also encourage entrepreneurship that would accelerate development work in the country. The SMEs will benefit greatly with the access to low cost funding”, Rajabdeen said.

The Federation of Chambers of Commerce and Industry of Sri Lanka (FCCISL) and the Regional Chamber Network are extremely pleased with the directives issued by the President to reduce the interest rates in the State Banks and identified the move as the first win in the war of economic rehabilitation.

Kosala Wickramanayake, President, FCCISL is of the view that the decision of the largest State Banks, Bank of Ceylon and People’s Bank to reduce the interest rates on all outstanding loans with immediate effect, is an encouraging and positive trend and request other banks to follow suit.

The Chambers are happy to note that anyone who borrows rupees one hundred will have to pay only one rupee a month as the interest component and this would sparkle considerable new businesses ad investments.

It is noted that the decision to accommodate under the scheme, defaulters with justifiable reasons is a great relief to those entrepreneurs who were affected by the conflict and the downturn of the economy.

We have on numerous occasions raised high interest rate issue with the President, Dr. P. B. Jayasundera, Secretary of the Treasury and Senior Officials of Government.