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Sri lanka deposit rate ceiling to fall in April
Sunil C.Perera on 28 March, 2008 14:02:00 | 1707 times read
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COLOMBO, March 28 (Reuters) - Sri Lanka's central bank said on Friday it was lowering the ceiling on deposit rates offered by finance companies to curb lending rates effective next month. The maximum rate on a time deposit with a maturity period of 12 months or less will be the maximum rate of 364-day Treasury Bills issued during the immediately preceding quarter, plus 2.5 percent. For deposits with a maturity period of more than 12 months the maximum return will be 5 percent plus 364-day T-Bills. The previous limits were 3 and 6 percentage points, respectively, above the relevant T-Bill yields. "The Central Bank expects that these revisions of the deposit interest rate ceilings would, in turn, lead to the reduction of the lending rates of finance companies," the central bank said in a statement. Finance companies in Sri Lanka offer returns on deposits high as 25 percent, higher than commercial banks. The market interest rate hovers around 18 percent. Their borrowing cost are higher than banks, sometimes over 35 percent, but investors still go to finance companies for reduced bottlenecks and minimum due diligence. Analysts see the central bank move as designed to spur economic growth which threatens to fall below target due to war, high inflation and soaring interest rates.
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