CB insists banks to pass on benefit of policy rate cut to borrowers
The Monetary Board of the Central Bank has decided at the March 4 meeting to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) at their current levels of 6.50 per cent and 7.50 per cent, respectively.
The Central Bank (CB) has insisted commercial banks to extend the benefit of policy rate reduction made in January to the borrowers promptly, Bank Governor Prof. W. D. Lakshman told a media conference in Colombo on Thursday.
The Monetary Board has pledged that sufficient liquidity in domestic financial markets will be maintained to tackle any impact cropped up from global developments, especially owing to the increase of the coronavirus.
He noted that Sri Lanka could face some economic difficulty feeling the affect of COVID-19 without elaborating details on its impact on the country’s economic growth.
Prof. Lakshman expressed the belief that the government’s stimulus package including the moratorium, and the interest rate cut as well as development initiatives would pave the way towards economic growth reaching to around 3.5 to 4 per cent in 2020 compared to last year.
He also expected the belief that there would be political stability after the general elections and the presentation of the 2020 Budget will boost investor confidence.
The ongoing fiscal stimulus and declining market interest rates are expected to compensate for the possible reduction of external demand to a great extent.
He accepted the fact that rising inflation has overshot projections due high food inflation which will come down in the next few weeks reaching the 4 to 6 per cent target range.
“Private sector credit growth is to continue its rising tendency, particularly with declining lending rates,” he said adding that lending rates will be further come down.
Sri Lanka is expecting to tackle debt servicing issue by borrowings of more than a billion US dollars the from China Development Bank, which may be finalised within weeks, CB Deputy Governor Nandalal Weerasinghe revealed.
Discussions have been held to get a loan of 1 to 2 billion US dollars, but could be around $1.3 billion, he said.
The loan would be within the borrowing limits approved in a vote on account up to April, Dr. Weerasinghe said.
Sri Lanka’s budget deficit is expected to rise to 7.5-7.9 per cent of the gross domestic product in 2020, after value-added taxes were slashed.
The CB is awaiting directives from the Government on whether additional support should be given to apparel and other affected industries (from the coronavirus impact). CB Deputy Governor H.A. Karunaratne said.
11,000 applications have been received by commercial banks under the Small and Medium Enterprise (SME) moratorium, he said adding that of this 6500 coming from customers with performing loans, and the rest from non-performing loans.
The banks will continue processing applications till the end of March, he added.