NewsSri Lanka's Central Bank (CB) on Monday rejected assertions by rating agency Moody’s Investors Service that the recent interest rate cut was ‘credit negative for banks”. The reduction in SRR has also improved rupee liquidity in the domestic money market, while a further reduction in money market interest rates has been effected by reducing policy interest rates by 100 basis points in two steps in May and August 2019. The imposition of caps on deposit interest rates of licensed banks in April 2019, which was subsequently removed in September 2019, was aimed at limiting unhealthy competition in deposit mobilisation amongst banks and assisting them to reduce lending interest rates. However, in spite of continued deliberations with banks, most market lending interest rates have been downward rigid, unlike deposit interest rates as well as rates on short term funds and government securities, the statement said. It is in this context that the CB imposed caps on lending rates of licensed banks on September 24.

Source: Sunday Times September 30, 2019 12:22 UTC