CBSL eases restrictions on standing facilities for licenced commercial banks
February 08, Colombo (LNW): The Central Bank of Sri Lanka (CBSL) has announced its decision to alleviate restrictions previously imposed on Standing Facilities available to Licensed Commercial Banks (LCBs) under Open Market Operations.
Effective from February 16, 2024, the CBSL will eliminate the restriction on the Standing Lending Facility and ease limitations on the Standing Deposit Facility.
Initiated on January 16, 2023, the CBSL had imposed restrictions on LCBs’ utilisation of Standing Facilities within Open Market Operations.
These restrictions encompassed a maximum of five accesses per calendar month to the Standing Deposit Facility (SDF) and capped access to the Standing Lending Facility (SLF) at 90 percent of each LCB’s Statutory Reserve Requirement (SRR) on any given day.
The rationale behind these measures was to mitigate LCBs’ reliance on overnight facilities provided by the Central Bank.
This aimed to revitalise the domestic money market, particularly the call money market, while encouraging LCBs to implement internal corrective measures.
Positive outcomes ensued from these measures, evident in the revitalisation of the domestic money market and the mitigation of excessive competition among financial institutions for deposit mobilisation.
Furthermore, these measures contributed to moderating the market interest rate structure in line with the monetary policy stance, thereby upholding the stability of financial institutions and the financial system.
Following a meticulous review of developments in the domestic money market and LCBs’ market participation, alongside liquidity improvements, the Monetary Policy Board, in its meeting held on February 07, resolved to relax the restrictions on Standing Facilities available to LCBs within OMOs.
Commencing from the reserve maintenance period starting February 16, 2024, the restriction on the SLF will be lifted entirely, and the restriction on the SDF will be relaxed from five to ten accesses per calendar month.
The relaxation of these restrictions is anticipated to expedite the downward adjustments in market interest rates, aligning with the overarching monetary policy direction of the Central Bank.