CBSL eases borrowing limits for banks

COLOMBO (News 1st); The Central Bank of Sri Lanka (CBSL) announced today a relaxation of restrictions on borrowing by commercial banks, aiming to stimulate the domestic money market and accelerate a decline in interest rates.

In January 2023, the CBSL imposed limits on banks' access to its overnight lending and deposit facilities (Standing Lending Facility and Standing Deposit Facility) to encourage them to rely more on the interbank call money market. This move aimed to revitalize the money market and reduce banks' overdependence on the central bank.

The CBSL reports that the initial restrictions achieved their intended goals, reactivating the money market and moderating competition for deposits among banks. The measures also helped align market interest rates with the central bank's monetary policy stance while maintaining financial system stability.

Following a review of market developments and improved liquidity conditions, the CBSL has decided to ease the borrowing limits. Effective February 16th, 2024:

The restriction on access to the Standing Lending Facility is completely removed.

The limit on access to the Standing Deposit Facility is doubled, from five times per month to ten times per month.

The CBSL expects this relaxation to further stimulate interbank lending and borrowing, leading to a faster decline in market interest rates in line with its overall monetary policy goals.