The Monetary Board of the Central Bank, at its meeting held on 15 April 2020, having observed the cumulative reduction of the key policy interest rates of the Central Bank, namely the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR), by 200 basis points each since 31 May 2019,
It has decided to allow the Bank Rate to automatically adjust in line with the SLFR, with a margin of +300 basis points.
Accordingly, with effect from 16 April 2020, the Bank Rate which is an administratively determined rate that could be used in periods of emergency has been effectively reduced by 500 basis points from 15.00 per cent to 10.00 per cent.
The Monetary Board of the Central Bank, on 03 April 2020, previoudly 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 6.00 per cent and 7.00 per cent, respectively
But Sri Lankan market participants doubt the ability of the monetary stimulus by the Central Bank to rev up the economic activities and supporting the struggling equity market.
“The hurriedly prepared Central Bank statement and its shallow content also reflect the decision is driven largely by impulse, other than anything else,” an analyst commented on current monetary policy action.
Sri Lanka’s stock market was closed forsome time, although the banks were kept open.
The Central Bank’has otelobortaed what the bank had already done to spur economic activity, which included the credit support scheme, instead of forward-looking measures.
In response to the previous monetary easing and the most recent interest rate cut, the Average Weighted Prime Lending Rate (AWPR) and Average Weighted Lending Rates (AWLR) are on the decline.
“ The 500 basis point cut in the Bank rate will release some additional liquidity to the market, which may help in providing liquidity support to the businesses that may be in need, an analyst said.
The situation doesn’t warrant a policy rate cut as the market lending rates were already on the decline in response to the previous policy easing, he aded.
(LI)