Call to lower lending rates
 The Central Bank has called upon banks to lower market lending rates
to reflect decline in interest rates on bank deposits.
The monetary policy review issued by the Monetary Board said that
deposit rates have reduced to anticipated levels, although the lending
rates in the market have still not adjusted in line with the decline in
deposit rates.
The report said, “As a result of slower-than-expected adjustment in
market lending rates, corporates have increasingly resorted to
alternative sources of financing, such as corporate debt and equity
issuance, suppliers’ credit and funds raised from abroad under relaxed
exchange control regulations.
Nevertheless, a reasonable level of expansion in bank credit
disbursed to productive sectors of the economy is considered beneficial
for continued growth in economic activity”. Central Bank sources said
that banks have adequate space to reduce market lending rates further to
encourage the private sector to demand credit from the banking sector,
while also tightening the spread between lending and deposit rates of
banks to a more reasonable level.Considering economic performance and
financial sector developments, the Monetary Board has kept policy
interest rates, Standing Deposit Facility Rate (SDFR) and the Standing
Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.50
percent and 8.00 percent.
Excerpts of the report:
The Sri Lankan economy registered a growth of 7.6 percent in the
first quarter of 2014 over the growth of 6.1 percent in the
corresponding period of the previous year. The growth in the economy was
led by contributions from the Industry and Services sectors although a
slowdown was observed in the Agriculture sector owing to adverse
weather.
The growth momentum is likely to continue during the remainder of the
year with improved global economic conditions and expected improvements
in domestic credit conditions enabling the economy to achieve an
envisaged growth of 7.8 percent for 2014.Reaching its lowest level since
February 2012, headline inflation (y-o-y) decelerated to 3.2 percent,
while core inflation (y-o-y) decelerated to 3.3 percent in May 2014,
underpinned by well managed inflation expectations and subdued demand
conditions.
Inflation is expected to remain in mid-single digits during the year. |
