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Central Bank orders banks to reduce loan interest rates by 200 bps by mid-October

central bank of sri lanka

Sep 24, 2019 (LBO) – Monetary Board of the Central Bank has decided to order the Licensed Banks to reduce interest rates applicable on all rupee-denominated loans and advances by at least 200 basis points by 15 October 2019, in comparison to the interest rates applicable as at 30 April 2019, subject to certain exclusions.

With effect from 01 November 2019, in the case of credit card advances, the maximum interest rate applicable will be 28 percent per annum, while in the case of pre-arranged temporary overdrafts, the maximum interest rates applicable will be 24 percent per annum.

Penal interest rates added to loans and advances have been capped at 400 basis points per annum, for the amount in excess of an approved limit or in arrears, during the overdue period, with effect from 15 October 2019.

Each LCB is also expected to reduce its Average Weighted Prime Lending Rate (AWPR) by 250 basis points by 27 December 2019 compared to its AWPR as published by the Central Bank as at 26 April 2019.

By 01 November 2019, each LCB’s AWPR must be at least 150 basis points lower than its AWPR as at 26 April 2019.

The Central Bank further said it will continue to closely monitor the movements in market lending rates to ensure a more effective transmission of monetary policy through the financial system.

The Central Bank also expects to review this Order at end March 2020.

Sri Lanka’s real lending rates are unacceptably high compared to its peer economies.

The Central Bank said it is not consistent either with the low inflation regime experienced by the country over the past 10 years and the expectations of 4-6 percent level of inflation envisaged under the proposed flexible inflation targeting framework.

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