Private banks and interest rates

Monday, 2 September 2019 01:22 -     - {{hitsCtrl.values.hits}}

In this time of very slow economic growth, in order to stimulate the economy our Central Bank has substantially reduced the interest rates, including the lending rates. This was an essential move after the 21 April incident as it destroyed our economic prospects.

But however, the sad fact is that the commercial banks have not reduced their lending rates (on existing loans) while paying the depositors reduced rates on their deposits. Again, these commercial banks are making a killing on the helpless customers. 

By not immediately implementing the rate cut of the Central Bank, these commercial banks are resisting the moves by the Central Bank to stimulate the economy. Those who have borrowed are struggling to survive as business is near zero. But the banks are not giving them any relief insisting on the old interest rate on their borrowings.

During the time of the previous Governor (Ajith Cabraal) banks were afraid of him, and did not dare to ignore his directions.

Now that we have a more democratic type of Governor, it seems the banks are just ignoring Central Bank directives.

Saliya Jayawardena