Central Bank cuts interest rates in support of COVID-19 prevention
View(s):The Central Bank on Monday, which was declared a holiday across all sectors, cut interest rates by 25 basis points as an immediate measure to enhance economic and prevent the rapid spread of COVID-19. The move became effective from Tuesday, March 17.
In a public statement, the Monetary Board of the Central Bank of Sri Lanka, at an urgent meeting on Monday March 16, to review its monetary policy stance, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 25 basis points to 6.25 per cent and 7.25 per cent, respectively, with effect from March 17 and to reduce the Statutory Reserve Ratio (SRR) on all rupee deposit liabilities of licensed commercial banks (LCBs) by 1.00 percentage point to 4.00 per cent, with effect from the current reserve maintenance period.
“The board arrived at this decision in consideration of the urgent need to support economic activity with the rapid global spread of the COVID-19 pandemic and its possible further spread in Sri Lanka,” the statement said.
It said Sri Lanka’s economic growth, which has remained subdued for an extended period of time until end 2019, has begun to turnaround as a result of the fiscal and monetary stimulus and the return of business confidence after the presidential election.
However, it has increasingly become evident that domestic economic activity during 2020 would continue to be affected through various channels by the spread of the pandemic.
The Central Bank also assured the financial market of the provision of liquidity as necessary to counter any impact arising from the evolving situation.
“Today’s decision will complement the above measures that are already in place. The Central Bank re-emphasises the need for all financial institutions led by licensed commercial banks to ensure the full benefit of the cumulative reduction of 75 basis points in policy interest rates thus far during the year as well as the reduced cost of funds through the reduction in SRR is reflected in market lending rates without further delay. In addition, the Central Bank requests financial institutions to refrain from engaging in speculative activity which could lead to panic in the financial market. The Central Bank has put in place well tested business continuity arrangements, which will be triggered as and when required to prevent any disruption to cash and electronic transactions and ensure the timely settlement of liabilities of the government and the Central Bank,” the statement said.
The Central Bank said it was working closely with the government to ensure coordinated fiscal and monetary policy responses to mitigate the economic impact of the COVID-19 pandemic. In particular, the Central Bank will work with the government to raise the required funding for the government smoothly to tackle the current exceptional situation.
The Central Bank will closely monitor global and domestic market developments and take further policy, regulatory and operational actions as necessary, while monitoring activities of each financial institution to ensure smooth functioning of the financial market and the transmission of the Central Bank action to the economy in order to ensure that those who are in need of urgent support receive the required timely assistance.
| Central Bank closely monitoring global, domestic developments vis-à-vis COVID-19 The Central Bank (CB) is closely monitoring global and domestic market developments, and further measures will be taken as necessary to mitigate the economic impact of the COVID-19 pandemic, according to CB Governor Prof. W.D. Lakshman, Issuing a statement on Tuesday, he referred to Monday’s decision of the Monetary Board of the CB where policy interest rates were reduced by 25 basis points and the Statutory Reserve Ratio by 1.00 percentage point. He said, while an economic turnaround was envisaged this year, it is increasingly evident that domestic economic activity during 2020 would continue to be affected by the spread of the pandemic. “The action taken by the Monetary Board on Monday will complement the measures that are already in place to revive economic activity, by inducing a further reduction in market lending rates and boosting liquidity conditions in the domestic money market,” he said. The CB has requested all financial institutions led by licensed commercial banks to pass to the market the full benefit of the cumulative reduction of 75 basis points in policy interest rates thus far during the year as well as the reduced cost of funds through the reduction in SRR without any delay, to ensure that those who are in need of urgent support receive the required timely assistance. The statement said that it is good for financial institutions to keep in mind that the revival of business activity in the country is to their “own self-interest”. “We have also requested financial institutions to refrain from engaging in speculative activity which could lead to panic in the financial market. We are working closely with the government to ensure coordinated fiscal and monetary policy responses to mitigate the economic impact of the pandemic,” he said. As was done on Monday, the well tested business continuity arrangements of the CB will be triggered as and when required to prevent any disruption to cash and electronic transactions of the general public and ensure the timely settlement of liabilities of the government and the regulator. | |