Reduction in market interest rates expected to be passed on to customers – CBSL Governor

By Hiran H.Senewiratne

With a reduction in market interest rates being possible it is expected that the relevant reductions will be provided to the customers by the country’s financial institutions soon, Governor of the Central Bank of Sri Lanka (CBSL), Dr. Nandalal Weerasinghe stated.

‘The changes that need to be made for the loans that have been issued by now will happen soon. We are keeping an eye on that. At the same time, we have seen instances where new loans are issued for higher interest rates. But that shouldn’t happen. We expect that change to happen soon, the Governor said yesterday at the monthly CBSL monetary policy review meeting held at the Central Bank head office in Colombo.

Dr. Weerasinghe added: ‘A further decline in market lending interest rates is warranted and the overall market interest rate structure has adjusted downwards in response to the monetary policy easing measures implemented thus far.

‘The yields on government securities continued to decline, further aligning with the current level of policy interest rates. With the decline in average deposit interest rates in the banking sector in recent months along with the moderation of benchmark interest rates, further space has been created for overall lending interest rates to adjust downwards in the period ahead.

‘Moreover, elevated interest rates on selected loan products are yet to be adjusted downwards in line with the overall interest rate structure.

‘Flows of credit to the private sector have only recorded a marginal expansion thus far during the year, in spite of the notable monetary policy easing and the improvement in overall liquidity conditions. A further reduction in retail lending interest rates could facilitate the pickup in private sector credit, thereby supporting the ongoing recovery of economic activity.

‘The Central Bank kept its policy corridor unchanged with most rates converging towards the floor rate in recent weeks helped by a buildup of excess liquidity from dollar purchases.

‘While the medium term inflation outlook remains compatible with the current level of policy interest rates and inflation expectations are well anchored, the Board observed the need for a further reduction in market lending interest rates in line with policy interest rates and other benchmark interest rates, which is imperative for the easing of domestic monetary conditions and domestic economic recovery.