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14 Sri Lanka banks to reduce lending interest rates to spur economy

By: Staff Writer

Colombo (LNW): The Central Bank Governor Dr. Nandalal Weerasinghe says additional monetary policy easing will be paused in the near term, leaving room for market interest rates to fall lower in accordance with current and previous monetary policy easing measures.

“All licenced banks need to take swift measures to reduce market lending interest rates to ensure that the benefits of the series of monetary policy easing measures are adequately passed on to businesses and households,” he added.

Noting that 14 banks have taken proactive measures to reduce lending interest rates, he acknowledged that 10 banks have not complied with the directive. “We have notified them and actions will be taken against those banks if they fail to comply before 31 December,” he added.

“With the moderation of market lending interest rates, credit to the private sector is expected to increase, thereby supporting the envisaged rebound of domestic economic activity,” he added.

The Monetary Board anticipates a swift, sizeable and broad-based reduction in overall market lending interest rates in line with the monetary policy easing measures affected since June 2023.

Such adjustment in interest rates is imperative to ease the domestic monetary conditions further.

Market interest rates are expected to normalise in the period ahead. Market interest rates continued to adjust downwards, and most benchmark interest rates have declined significantly.

Meanwhile, the yields on government securities are also adjusting downwards with falling risk premia.

The reduction of policy interest rates by 100 bps in this monetary policy review is expected to create further space for market interest rates to adjust downward and normalise in the period ahead.

Reflecting the transmission of the relaxed monetary policy stance, outstanding credit to the private sector by the banking sector expanded on a monthly basis in September as well as in October 2023 based on provisional data.

With the moderation of market lending interest rates, credit to the private sector is expected to increase further in the period ahead, thereby supporting the envisaged rebound of domestic economic activity.

Policy interest rates are further reduced in view of the stable inflation outlook over the medium term and subdued demand pressures.

.The monetary Board viewed that, with this reduction of policy interest rates and based on the available information, further monetary policy easing will be paused in the near term, given the space for market interest rates to adjust downwards in line with the current and past monetary policy easing measures.

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