The weekly Average Weighted Prime Lending Rate (AWPR) of Sri Lanka has stayed well below 10% in 2020, showing signs of remaining below this level in the upcoming weeks to keep up with the expectations of the Central Bank of Sri Lanka (CBSL) and the Government.
The AWPR came down to 9.47% during the week that ended 13 March 2020, compared to the 11-13% range during the period from January to March last year.
In July last year, the AWPR came under 11% for the first time in more than a year and since then, despite a few fluctuations in between, the rate has remained in the desired levels of the Central Bank.
The prime lending rate is the interest rate charged by Sri Lanka’s banks from their largest, most secure, and most creditworthy customers on short-term loans. This rate is used as a guide for computing interest rates for other borrowers. The weekly AWPR is the average prime lending rate among banks in a particular week. A lower rate means more access to finance for businesses and entrepreneurs, enabling greater economic activity and growth.
During the week that ended 27 December 2019, the AWPR was 9.94%, which dropped to 9.74% a week later before picking up slightly to 9.76% on 9 January 2020. It dropped to 9.65% and 9.62% during the weeks that ended on 17 January and 24 January, respectively. It increased to 9.68% on 31 January.
In February, the AWPR remained below 9.60%. During the first week of February, it was 9.47% and increased slightly during the subsequent weeks that ended 14 February and 21 February to 9.52% and 9.59%, respectively. During the last week of the month, it dropped to 9.47%.
During the first two weeks of March, the AWPR was below 9.50%, at 9.38% – the lowest rate so far this year – and 9.47%, respectively.
Considering 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 Central Bank last Monday (16), during an urgent meeting, reviewed its monetary policy stance and 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% and 7.25%, respectively, with effect from 17 March 2020.
It has also decided to reduce the Statutory Reserve Ratio (SRR) on all rupee deposit liabilities of licensed commercial banks (LCBs) by 1-4%, with effect from the current reserve maintenance period.
This is the second time this year the Central Bank reduced the policy rates as it reduced the policy interest rates of the Central Bank by 50 basis points effective 30 January 2020.
The Central Bank re-emphasised 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.
Furthermore, during a recent press conference conducted at the Central Bank, senior officials stated that they would closely monitor the behaviour of the banks’ lending rates and would take necessary actions against banks that fail to comply with the Central Bank’s lending rate requirements.