CBSL expects downward adjustment in bank interest rates; looking at imposing administrative measures

The Monetary Board of the Central Bank has noted with concern the anomalous rise in market interest rates, particularly deposit interest rates and short term lending interest rates, despite the recent improvements in overall money market conditions and the adverse implications on business and economic activity.

“The Central Bank would expect a moderation of excessive market interest rates, in line with the prevailing policy interest rates,” the Monetary Board said.

“If an appropriate downward adjustment in the market interest rates would not take place in line with the envisaged disinflation path, the Central Bank will be compelled to impose administrative measures to prevent any undue movements in market interest rates.”

Outstanding credit extended to the private sector by commercial banks is expected to have contracted for the fifth consecutive month in October 2022, reflecting the impact of increased market lending interest rates and the moderation in economic activity.

Market deposit interest rates have also risen notably disproportionate to the adjustment in the policy interest rates.

The continued excessive upward adjustment in market interest rates, despite the improvements in domestic money market liquidity and the deceleration of inflation, has resulted in persistent anomalies in the interest rate structure.

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