Can the Central Hold?

Central Bank has been bringing down their policy rates in the last two years to encourage local investment. However they say that bank-lending rates have not come down proportionately.

rnThere is a big difference between the interest charged on a loan and interest paid on deposits at any commercial bank in the country.rn

This difference helps absorb the risks involved such as credit and market risks in lending.rn

rnOther risks include high operational costs, non-performing loans and taxes.rn

rnHowever the regulator of financial institutions, central bank says this difference or the interest rate spread should narrow in line with the rate decline in the last two years.rn

rnldblquote There was greater stability in money and forex market. Internationally also the interest rates have come down.

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Because of these the Central Bank had reduced its lending rates. But what we are saying is that it (lending rates of commercial banks) has not come down as we expected, dblquote Ananda Silva, Money and B