Lending Boost

June 26, 2013 (LBO) – Sri Lanka has cut the deposits that commercial banks have to keep with the central bank by 200 basis points to 6.0 percent to boost lending cut intermediation costs, the central bank said. The full statement is reproduced below

Central Bank reduces Statutory Reserve Requirement (SRR) by 2 percentage points

Since December 2012, in response to the reasonably stable inflation prevailing in the country for a prolonged period of time, the Monetary Board has been gradually easing its monetary policy stance, with two reductions in the policy rates and the removal of the credit ceiling. In keeping with such policy, an adjustment of general lending rates has taken place, albeit rather slowly. At the same time, the Monetary Board has noted with some concern that the spread between deposit and lending rates in Sri Lanka is still considerably higher than those of regional economies. While such situation may signify a comparatively lower efficiency of financial intermediation in Sri Lanka, a further contributory factor was considered to be the comparatively higher SRR of Sri Lanka in relation to other emerging economies.

Accordingly, at its meeting on 25th June 2013, the Monetary Boa