As the global economic and financial crisis slowly hit Sri Lanka, the Central Bank (CB) on Tuesday announced that it was relaxing the statutory reserve requirements held by banks to release more liquidity in a market hit by a shortage of cash.
The CB said this move will release Rs 17 billion in the market. The Bank said it was reducing the Statutory Reserve Requirement (SRR) by 150 basis points to 7.75% from its current rate of 9.25 % with effect from the ‘reserve week November commencing November 28’. This would help ease the liquidity deficit and upward pressure on market interest rates and reduce the interest rate spread of commercial banks, thus enabling them to lend at lower and more desirable rates as well.
The statement said the shortage of liquid dollar balances in international financial markets arising from the ongoing global financial crisis and the higher demand for domestic funds had caused a prolonged liquidity shortfall in the domestic financial markets. Earlier on October 12, the Bank reduced the SRR on rupee deposit liabilities of commercial banks by 75 basis points to 9.25 %. The Central Bank has also been injecting additional liquidity by way of providing reverse repo facilities to banks and primary dealers.
“It should also be noted that since inflation is already on a decelerating trend at a faster rate than expected, this measure is not expected to pose any threat to the inflation outlook,” the statement said. |
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