Meanwhile, the Central Bank also expects the interest rates of long-term loans to the private sector to further decrease in the ensuing months.
In fact, despite the two rounds of easing measures in December 2012 and May 2013, the commercial banks were slow in bringing down their lending rates and as a result, the Central Bank went to the extent of cutting the interest rates on delayed payment of credit card balances from 4 percent to 24 percent.
However, ex-Central Banker and veteran economist W.A. Wijewardena recently argued that the Central Bank had chosen the wrong interest rate to tame the banks. As a consequence of this move, he even cautioned of accumulation of unpaid credit card balance in the system just like in South Korea in 2007, which can threaten the stability of Sri Lanka’s financial system.
As the commercial banks seemed little responsive to the Central Bank’s advice, the CB went on to reduce the statutory reserve ratio in June, which is believed to have released at least Rs.45 billion to the system.
The Central Bank however said that a downward movement was observed in Treasury yield rates, as well as in the short-term lending and deposit rates of major commercial banks.
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