Commercial banks should pass on the low interest lending benefits to customers, Governor Central Bank Dr. Nandalal Weerasinghe said delivering the second monetary policy review for 2024 yesterday.
“The banks are taking a very long time in this regard and this is not acceptable.” He also said that banks have been told to start ‘business recovery units’ to assist enterprises that are in ‘red’ and help them to bounce back. “The World Bank too is supporting this initiative.”
In addition commercial banks are also requested to start ‘special corporate work out’ schemes with companies that have taken extensive credit to help them to overcome this situation and restart their businesses again.
The Governor also said that he was not in favour of suspending the parate execution as it may have a negative impact on ‘lending’ of the banks. It is estimated that the total amount that comes under parate execution is around Rs. 114 billion which is around 1% of the bank’s loans.
The further easing of monetary policy would provide the required space for market interest rates, particularly lending rates, to adjust downwards further to levels conducive to continued expansion of credit to the private sector, thus supporting the ongoing revival of economic activity. In addition, the Monetary Policy Board was of the view that the MLA Order Interest Rates on Rupee Denominated Lending Products issued in August 2023 contributed to reducing the overall market lending interest rates and therefore yielded the expected results.This would further support market-based transmission of monetary policy adjustments.
The Board stressed the need for all financial institutions to take swift measures to reduce market lending interest rates to ensure that the benefits of the series of monetary policy easing measures are adequately passed on to businesses and households.
“Favorable growth outcomes recorded in the second half of the year helped limit the overall contraction of the economy to 2.3% in 2023, compared to the contraction of 7.3% recorded in 2022.” Commenting on the economy he said that As per the GDP estimates published by the Department of Census and Statistics (DCS), the economy is estimated to have grown by 4.5%, year-on-year, in the fourth quarter of 2023, following the moderate expansion of 1.6% (year-on-year) recorded in the third quarter of 2023.
He said that tourism earnings foreign remittances too have picked up by considerable margins and this has helped to boost foreign reserves as well.”
He predicted that due these and other foreign receipts expected the US dollar should be contained under the Rs. 300 barrier in the coming months as well.
Shirajiv Sirimane