Central Bank introduces maximum interest rate on mortgage-backed housing loans

Nov 26, 2020 (LBO) – Complementing the concessional loans schemes proposed by the Government in the Budget 2021, the Monetary Board of the Central Bank has decided to introduce a maximum interest rate on mortgage-backed housing loans obtained by salaried employees from licensed banks.

Accordingly, licensed banks will be made to charge only 7 percent per annum for such loans, at least for the first five years of the loan tenure.

The remaining tenure of the loan is to be charged at the monthly Average Weighted Prime Lending Rate (AWPR) plus a margin of up to 1 percentage point. Directions to this effect are to be issued to licensed banks shortly.

The Monetary Board urges all financial institutions, led by licensed commercial banks (LCBs), to pass on the benefit of the low interest rate environment expeditiously to their borrowers, in respect of new as well as existing facilities.

The Board also recognised the need to promote economic sectors with higher growth and earning potential, and in this regard, decided to introduce lending targets in the near future for selected sectors in conformity with the policies of the Government.

Meanwhile, the Monetary Board is of the view that the prevailing surplus liquidity conditions provide sufficient space for a further reduction in market lending rates without an adjustment to policy interest rates.

Accordingly, the Board has decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 4.50 percent and 5.50 percent, respectively.

Monetary easing measures implemented so far during the year are being transmitted to the economy as reflected by the decline in most market interest rates.

“Both deposit and lending rates have declined notably, while some interest rates have reached historic lows. However, the pace of reduction of market interest rates has slowed in the recent past,” the Central Bank said.

“The historically low levels of policy interest rates and the Statutory Reserve Ratio, as well as the availability of significant excess liquidity in the domestic money market, provide further space for market lending rates to adjust downwards in support of the recovery of domestic economic activity.”