COLOMBO, Aug. 9 (Xinhua) -- The Monetary Board of the Central Bank of Sri Lanka has decided to reduce the Statutory Reserve Ratio (SRR) applicable on all rupee deposit liabilities of commercial banks by 200 basis points from 4.00 percent to 2.00 percent.
The Central Bank said on Wednesday that the decision comes into effect from Aug. 16.
The Central Bank said this decision was taken with a view to injecting liquidity into the banking system and further reducing the market liquidity deficit on a permanent basis in line with the current monetary policy stance of the Central Bank.
This reduction in the SRR is expected to release around 200 billion rupees (about 623 million U.S. dollars) of liquidity to the domestic money market, the bank said.
This would allow licensed commercial banks to further reduce the market lending rates as a result of the reduction in the cost of funds, thereby supporting the expansion in credit flows to the country's economy, the Central Bank said.
The commercial banks are expected to pass the benefit of the SRR reduction to their customers without delay, while the Central Bank will continue to monitor market developments and take appropriate administrative measures, if required, to ensure a faster reduction of market lending rates, it said.
Sri Lanka increased its interest rates significantly last year to deal with the rising inflation. These rates have been reduced in the past few months. ■