Fiscal Rates

Oct 31, 2009 (LBO) – Sri Lanka finance ministry would issue a circular directing state banks to cut lending rates and there was a possibility of private banks being also directed to cut lending rates through the island’s monetary authority, a government minister said. Sri Lanka’s powerful president Mahinda Rajapaksa ordered state bank to cut lending rates by 700 basis points to between 8.0 and 12.0 percent last week.

State revenue minister Ranjith Siyambalapitiya told reporters Friday that a circular would be issued before November 03 to state banks detailing the way rates should be cut.

“We expect that private banks would follow suit,” Siyambalapitiya said.

Though the government had no intention to de-stabilize private banks, he said there was a possibility of government intervention through the monetary board or the governing body of the island’s central bank.

The original presidential order came following a meeting at which Siyambalapitiya and Treasury Secretary P B Jayasundera, who is a member of the rate setting monetary board of the Central Bank.

Sri Lanka’s current economic woes, where a housing and financial bubble collapsed in addition to being hit by a global downturn, had been blamed by economists on fiscal dominance of monetary p