Pressure mounting on banks to lower interest rates

With the sharp downward adjustment of interest rates in the past few months, pressure is mounting on the commercial banks to lower the lending rates. State Minister of Finance told the media on Saturday that it is now up to the bank to reduce the interest rates and help drive the economic activities in a proactive manner.

The state minister said so two days after the Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 23 August 2023, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 11.00 per cent and 12.00 per cent, respectively.

Meanwhile, The Central Bank of Sri Lanka (CBSL) has issued an Order reducing the interest rates on lending products of all licensed commercial banks (LCBs) and licensed specialized banks (LSBs) with effect from August 25 (Friday).

Accordingly, the interest rates on pawning facilities, pre-arranged temporary overdrafts, credit card advances, and new and existing Sri Lankan Rupee (LKR)-denominated lending products are also reduced adequately.

This was mentioned in the Order issued by the CBSL on the maximum interest rates on LKR-denominated lending products issued on Friday.In the recent past, the CBSL adopted several policy measures such as reduction of policy interest rates and the statutory reserve ratio, thereby facilitating a reduction in market interest rates.

Yet, despite the considerable easing of monetary conditions, the CBSL said interest rates on lending products of certain financial institutions continued to remain excessive and are not in line with the current monetary policy stance, posing challenges for individuals and businesses.

Accordingly, the CBSL’s Monetary Board issued an Order on the interest rates applicable on LKR-denominated lending products of licensed banks, directing them to reduce interest rate on pawning facilities to 18% per annum, pre-arranged temporary overdrafts to 23% per annum and credit card advances to 28% per annum commencing the next billing cycle.

The CBSL has directed all licensed banks to reduce the annual nominal interest rates applicable for all new and existing LKR-denominated lending products, excluding credit card facilities mentioned above and any other categories of lending products by at least 250 points by October 31, 2023 and further 100 basis points by December 31, 2023 in comparison to the interest rates that prevailed as at July 31, 2023. (SN)