Sri Lanka banks asked to cut lending rates, says Central Bank

May 5, 2009 (LBO) – Sri Lanka’s central bank said it had asked banks to cut interest charged on loans which remain high despite policy rate cuts, while its grip on overnight is also tenuous due to quantity restrictions on discount windows. The Central Bank said it has “informed the licensed banks to take appropriate measures to reduce interest rates charged from their customers.”

So far this year the monetary authority has cut its de facto main signal rate, the penal reverse repo rate, from 19.0 percent to 13.0 percent and also cut the statutory reserve ratio.

Though bond yields have responded, falling from around peaks of 20 percent to 14.00 percent, bank lending rates have been sticky.

“The easing of the monetary policy stance of the Central Bank was intended to facilitate a reduction in lending rates, thereby promoting private sector lending,” the Central Bank said.

“It is important that banks provide necessary funding to their customers, to facilitate economic activities and to enhance growth prospects in the economy.”

On April 30, the average prime lending rate of state-run Bank of Ceylon was 21.87 percent against 22.0 percent a week earlier. In state-run People’s Bank it was 21.35 percent against 22.33 a we