Measures to Reduce Interest Rates, Enhance Market Liquidity & Finance the Government
Measures to reduce interest rates, enhance market liquidity, and finance the government were aimed at supporting economic activity in the context of a low inflation environment. The Central Bank provided ample liquidity to the market at reduced and concessional interest rates. In addition to allowing increased currency flows in the economy, large liquidity injections to the banking system enabled banks to provide the support required by businesses and individuals to tide over the difficulties faced during the lockdown period in particular. Liquidity injections have been allowed to remain in the money market without being absorbed by the Central Bank in order to expedite credit flows. Key monetary policy instruments such as policy interest rates and the Statutory Reserve Ratio have been reduced to the lowest levels in history. The Bank Rate has been reduced sharply. Lower interest rates reduced the burden on borrowers who were facing various difficulties, while announced debt moratoria and working capital loan schemes provide extraordinary concessions to businesses and individuals. The Central Bank also provided required financing to the government to overcome fiscal stresses arising from the shortfall in government revenue and increased expenditure. This funding enabled the government to provide social security payments for a large share of the population and make payments in relation to essential health and other public services.
Timeline
| 08 July 2021 | The Central Bank of Sri Lanka Maintains Policy Interest Rates at their Current Levels (Press Release) |
| 20 May 2021 | The Central Bank of Sri Lanka Continues its Accommodative Monetary Policy Stance to Support the Sustained Recovery of the Economy (Press Release) |
| 08 April 2021 | The Central Bank of Sri Lanka Continues its Accommodative Monetary Policy Stance (Press Release) |
| 04 March 2021 | The Central Bank of Sri Lanka Reaffirms its Commitment to Continue the Current Accommodative Monetary Policy Stance (Press Release) |
| 01 January 2021 | The Central Bank of Sri Lanka Continues its Accommodative Monetary policy Stance (Press Release) |
| 26 November 2020 | Policy rates maintained at current levels. Caps on housing loans introduced. Lending targets for selected sectors to be introduced. (Press Release) |
| 22 October 2020 | The Central Bank of Sri Lanka continues its accommodative monetary policy stance. (Press Release) |
| 20 August 2020 | Policy rates maintained at current levels, while further measures to promote lending introduced. (Press Release) |
| 09 July 2020 | Policy interest rates of the Central Bank were reduced by a further 100 basis points to 4.50 per cent and 5.50 per cent, respectively. (Press Release) |
| 06 July 2020 | Signed and submitted the Enrolment Request to obtained a Repo Facility for US dollars 1,000 million from Federal Reserve Bank New York, to meet the contingent liquidity needs of the government. |
| 02 July 2020 |
Introduced following temporary regulatory measures on outward remittances for a period of 6 months. - investments to be financed out of foreign currency loans obtained by the investor from a person resident outside Sri Lanka under the provisions of the Foreign Exchange Act, ii. Suspend the outward remittances through Business Foreign Currency Accounts (BFCAs) or Personal Foreign Currency Accounts (PFCAs) held by persons resident in Sri Lanka, other than for the remittances on current transactions up to any amount or capital transactions up to a maximum of USD 20,000. |
| 01 July 2020 | The amount of foreign currency that can be retained by a person in, or resident in Sri Lanka in his possession has been increased from USD 10,000 to USD 15,000 with effect from 01.07.2020 which has also been permitted to be credited into a SDA. |
| 01 July 2020 |
Hon. Minister of Finance in consultation with the Monetary Board and with the approval of the Cabinet of Ministers has taken further measures to encourage opening of Special Deposit Accounts (SDAs) as stated below. • Any person who has arrived in Sri Lanka from overseas on or after 01.01.2020 can open SDAs with any Authorized Dealer on or before 07.10.2020, out of foreign exchange legitimately acquired and brought into Sri Lanka by such person subject to: - a declaration made to the Sri Lanka Customs at the port of arrival where the amount of such foreign exchange exceeds USD 15,000 or an equivalent amount in any designated foreign currencies. • Any person in, or resident in, Sri Lanka can open SDAs with any Authorized Dealer on or before 07.10.2020, out of foreign currency notes in his possession up to the limit of USD 15,000 and subject to such terms and conditions of the prevailing Regulations and Orders, subject to a declaration on the source of funds to the Authorized Dealer. |
| 16 June 2020 | The Statutory Reserve Ratio (SRR) applicable on all rupee deposit liabilities of LCBs was reduced by 200 basis points to its lowest level of 2.00 per cent. This reduction resulted in the injection of around Rs. 115 billion of additional liquidity to the domestic money market. (Press Release) |
| 06 May 2020 | Policy interest rates of the Central Bank were reduced by a further 50 basis points to 5.50 per cent and 6.50 per cent, respectively, effective from the close of business on 06 May 2020. Bank Rate was also reduced by a further 50 basis points. (Press Release) |
| 04 May 2020 | Initiated the provision of short term liquidity assistance for Standalone Primary Dealers to manage their liquidity on a short term basis. |
| 16 April 2020 | Reduced the minimum daily reserve requirement limit from 90 per cent to 20 per cent. This measure provided further space for LCBs to manage their overnight liquidity needs without any undue strains. |
| 16 April 2020 | The Bank Rate of the Central Bank, which is an administratively determined rate that could be used in periods of emergency, was reduced for the first time since 2003, by 500 basis points while allowing the Bank Rate to automatically adjust in line with the SLFR, with a margin of +300 basis points. (Press Release) |
| 03 April 2020 | The Central Bank purchased Rs. 60 billion of Treasury bills from the primary market to facilitate the government to make salary payments in April. |
| 03 April 2020 | Policy interest rates were reduced by a further 25 basis points to 6.00 per cent and 7.00 per cent, respectively, effective from the close of business on 03 April 2020. (Press Release) |
| 30 March 2020 | • Extended the provision of long term liquidity assistance for LCBs from 14 days to 90 days. This helped LCBs to source their long term liquidity needs with certainty. • Initiated the provision of long term liquidity assistance to Standalone Primary Dealers in addition to the overnight facility. |
| 25 March 2020 | Commencing the Treasury bill auction on 25 March 2020, the Central Bank purchased the shortfall in Treasury bill issuances. |
| 23 March 2020 | The Central Bank purchased Rs. 50 billion of Treasury bills from the primary market to finance the establishment of the energy stabilization fund by the government. |
| 16 March 2020 | Policy interest rates of the Central Bank were reduced by 25 basis points with effect from 17 March 2020 and the Statutory Reserve Ratio (SRR) on all rupee deposit liabilities of licensed commercial banks (LCBs) was reduced by 1.00 percentage point to 4.00 per cent. This resulted in the injection of permanent liquidity of Rs. 65 billion to the market. (Press Release) |
| 13 March 2020 | The Central Bank purchased Rs. 50 billion of Treasury bills from the primary market to fulfill urgent cash requirements of the government under exceptional circumstances. |
| 05 March 2020 | While maintaining policy interest rates at reduced levels, the Central Bank signaled that it stands ready to provide liquidity to domestic financial markets as necessary to mitigate any adverse impact stemming from the COVID-19 outbreak. |
| 26 February 2020 | The Central Bank transferred Rs. 24 billion as profits to the government. |
| 30 January 2020 | Policy interest rates of the Central Bank were reduced by 50 basis points. The Central Bank of Sri Lanka was “the first central bank to reduce policy interest rates after the outbreak of the coronavirus in China began to affect financial markets”, according to the global central bank news website “www.centralbanknews.info”. (Press Release) |