Tuesday September 24, 2019 18:00:16
HIGH STRUCTURE: Analysts have warned that contradictory monetary and exchange policies that generates monetary instability permanent depreciation led to structurally high rates not just in Sri Lanka but other countries including China. Either a float or a peg backed by consistent monetary policy or a genuine float will lead to rates more in line with countries with complementary monetary policy.
ECONOMYNEXT – Sri Lanka’s central bank has slapped price controls on commercial banks loans, as credit contracted and bad loans soared after the agency generated monetary instability by controlling the exchange rate while printing money to simultaneously control interest rates in 2018.
Sri Lanka has elevated interest rates due to conflicts between money and exchange policies which have led to permanent depreciation of the currency, critics have said.
The central bank has ordered banks to cut lending rates by 200 basis points from October 15, 2015, from rates charged on April 2019 ‘subject to certain exclusions’.
Each licensed commercial bank has been ordered to cut its its Average Weighted Prime Lending Rate (AWPR) by 250 basis points by 27 December 2019 from the rate published by the central bank on April 2019.
“By 01 November 2019, each LCB’s AWPR must be at least 150 basis points lower than its AWPR as at 26 April 2019,”the central bank said.
Rates on credit cards which are not settled on the settlement day, will be controlled at 24 percent.
Penal rates on banks have been controlled at 400 basis points.
The central bank earlier slapped price controls on deposits
The current administration started in 2015 with then finance minister Ravi Karunanayake announcing a raft of price controls including in milk tea, which has now been extended to banks.
With Easter Sunday attacks adding to monetary instability growth fell to 1.6 percent in the the June 2019 quarter.