Sri Lanka’s Central Bank requests financial institutions to refrain from engaging in speculative activity which could lead to panic in the financial market.

Delivering a statement, the Governor of Central Bank, W. D. Lakshman requested all financial institutions led by licensed commercial banks to pass to the market the full benefit of the recent reduction in policy interest rates.

“The action taken by the Monetary Board yesterday will complement the measures that are already in place to revive economic activity, by inducing a further reduction in market lending rates and boosting liquidity conditions in the domestic money market,” he said.

“It is good for financial institutions to keep in mind that the revival of business activity in the country is to their own self-interest.”

Full statement

Preventing Disruptions to Economic Activity amidst the Spread of the COVID-19 Pandemic

At an urgent meeting to review the monetary policy stance of the Central Bank of Sri Lanka on 16 March 2020, the Monetary Board decided to reduce policy interest rates by 25 basis points and the Statutory Reserve Ratio by 1.00 percentage point. This decision was taken as a proactive measure to urgently support economic activity with the rapid global spread of the COVID-19 pandemic and its possible further spread in Sri Lanka.

The Sri Lankan economy has begun to turnaround as a result of fiscal and monetary stimulus and the return of business confidence after the presidential election, following an extended period of subdued growth. However, it is increasingly evident that domestic economic activity during the year 2020 would continue to be affected by the spread of the pandemic.

The action taken by the Monetary Board yesterday will complement the measures that are already in place to revive economic activity, by inducing a further reduction in market lending rates and boosting liquidity conditions in the domestic money market. We have requested all financial institutions led by licensed commercial banks to pass to the market 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 without any delay, to ensure that those who are in need of urgent support receive the required timely assistance. It is good for financial institutions to keep in mind that the revival of business activity in the country is to their own self-interest.

We have also requested financial institutions to refrain from engaging in speculative activity which could lead to panic in the financial market.
We are working closely with the government to ensure coordinated fiscal and monetary policy responses to mitigate the economic impact of the pandemic. As was done yesterday, the well tested business continuity arrangements of the Central Bank will be triggered as and when required to prevent any disruption to cash and electronic transactions of the general public and ensure the timely settlement of liabilities of the government and the Central Bank.

We are closely monitoring global and domestic market developments, and further measures will be taken as necessary to mitigate the economic impact of the pandemic.

Thank you.

Source – LBO

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