Reduction in lending rates and Leasing Companies

The Central Bank has been easing its monetary policy since the beginning of 2009 in view of the rapid decleration in inflation, in order to provide a stimulus to economic activities. In response, money market interest rates have fallen gradually and Treasury Bills yield rates have declined by over 900 basis points so far this year. Similar declines have been observed in other short-term interest rates as well. In line with such decline, banks' deposit and lending rates too have reduced significantly. Deposit rates of registered finance companies and borrowing rates of specialized leasing companies too have reduced, and are expected to reduce even further, resulting in a substantial reduction in their costs of funds.

In that context, the Central Bank is of the view that there is now sufficient space for the registered finance companies and specialised leasing companies to reduce their lending rates, and accordingly the Central Bank expects those financial institutions to make a commensurate downward adjustment in lending rates, over the coming weeks. Such a reduction would benefit entrepreneurs in industry, services and agriculture sectors, in particular small and medium scale businesses. At the same time, the leasing, hire purchase and other lending volumes of registered finance companies and specialized leasing companies would increase as a result, thereby contributing to improve economic activities in the country.