The CBSL has cut the statutory reserve ratio by 200 basis points, releasing $617mn in liquidity in the banking system. The size of its re-finance facility has also been tripled.
The CBSL (Central Bank of Sri Lanka) has reduced the cash deposit liabilities that commercial banks are required to maintain at the central, in a bid to ensure sufficient liquidity in the economy.
On Tuesday (16 June), the SRR (statutory reserve ratio) – applicable to all rupee deposit liabilities of licensed commercial banks – was cut by 200 basis points, from 4 percent to 2 percent.
The move is expected to release LKR 115 billion (USD 617 million) in liquidity, allowing the banking system to expedite credit flows into the economy, while reducing their cost of funds.
“The financial sector is expected to pass the benefit of the high level of liquidity and the reduced cost of funds to the economy without delay, by increasing lending to businesses and households at low cost,” the CBSL said.
The CBSL has reduced the SRR by a total of 300 basis points during 2020, amid forex shortages and rating downgrades, exacerbated by economic impacts of the Covid-19 pandemic.
Following through on a Cabinet decision earlier this month, the CBSL has also tripled the limit on the ‘Saubagya Covid – 19 Renaissance Facility’, from LKR 50 million to LKR 150 million, to channel additional working capital loans to businesses adversely affected by the Covid-19 pandemic.
Under the re-finance scheme, the CBSL provides funding to banks at a 1 percent concessionary rate, against a broad spectrum of collateral, on the condition that banks in turn lend to domestic businesses at 4 percent.
The expansion of the scheme came after complaints from various parties that they had not received relief from their banks since the facility was announced in March. The CBSL said LKR 27.5 billion from the facility has already been distributed by banks from the March LKR 50 billion.
The CBSL has also announced a new dedicated credit scheme for the construction sector, allowing firms to borrow from banks using guarantees issued by the government.
The new measures are aimed at appeasing an unsatisfied President Gotabaya Rajapaksa, who has criticised the CBSL for not adequately using its tools to revive the coronavirus-hit economy and aid businesses impacted by the virus-induced lockdowns.