CBSL relaxes restrictions imposed on Standing Facilities

The Monetary Policy Board, at its meeting on Wednesday decided to relax the restrictions imposed on the Standing Facilities to Licenced Commercial Banks (LCBs) under Open Market Operations (OMOs). 

The Central Bank said yesterday with effect from the reserve maintenance period commencing 16 February, the restriction on the SLF will be removed and the restriction on SDF will be relaxed from five times to ten times during a calendar month. 

The relaxation of the restrictions on the Standing Facilities is expected to accelerate the downward adjustments in market interest rates as envisaged under the overall monetary policy direction of the Central Bank.

The CBSL in mid-January last year introduced restrictions on the usage of the Standing Facilities by the LCBs under the OMOs.

The access to the Standing Deposit Facility (SDF) was limited to a maximum of five times per calendar month, while access to the Standing Lending Facility (SLF) was limited to 90% of the Statutory Reserve Requirement (SRR) of each LCB, at any given day. 

CBSL said these measures were imposed with the intention of reducing the overdependence of LCBs on the overnight facilities offered by the Central Bank, supporting the reactivation of the domestic money market, particularly the call money market, and inducing LCBs to introduce internal corrective measures. 

The Central Bank said it observed that these measures have yielded positive outcomes by way of reactivating the domestic money market and curtailing excessive competition for deposit mobilisation among financial institutions. 

These measures were also instrumental in inducing a moderation in the market interest rate structure in line with the monetary policy stance, while preserving stability of financial institutions and the financial system. The relaxation was following careful reviews of the developments in the domestic money market, as well as the behaviour of LCBs in terms of market participation along with the improvements in liquidity. 

Analysts welcomed the move saying five extra days for banks to park money at the SDF, was good for cash flow management. “The biggest benefit is the unlimited access to the SLF going forward. So, as the lender of last resort to banks, it’s very comforting,” they added.