Rate Ceiling

Sept 23, 1010 (LBO) – Sri Lanka’s central bank has asked banks to cut interest rates on housing loans to 14.0 percent and interest on credit cards to 24 percent by end-October following steep policy rates cuts and lower economic risks. The monetary authority, which is also the bank regulator, said rates on other loans should be cut by one to two percent.

The central bank said since February 2009, its policy repurchase rate at which money is injected to the market has been cut by 300 basis points to 9.00 percent and the repurchase rate at which money is drained by 300 basis points.

“In response, the market interest rates have also adjusted downwards. The banks’ lending rates have also declined with a time lag, but are yet to show full downward adjustment,” the Central Bank said in a statement.

“At the same time, the current macro economic performance and stability warrant a reduction in the risk premia added to lending rates, thus leading to the spread between lending rates and deposit rates of banks reducing further.”

The central bank said it had “requested all banks to take appropriate measures” to cut rates.

Last year most savings in banks were channeled to fund a massive 10.3 percent of gross domestic pro