Market uncertainties about external debt restructuring have not allowed the Prime Lending rates and Treasury Bill rates to drop despite the drop in policy rates, Governor of the Central Bank of Sri Lanka (CBSL), Dr. Nandalal Weerasinghe said. 

Speaking at a public forum on Friday (15) held at the CBSL, the Governor said that under normal circumstances prime lending rates should drop to about 10% from the current 12% when the policy rates are at about 9% as the usual gap between the two rates is about 1-2%.

“It (prime lending rates) should definitely come down further, one of the reasons for it to not come down is that benchmark rates of the Treasury Bills are much higher,” he said.

Moreover, he said under normal circumstances, the Treasury bill rate should be closer to the policy rates and prime lending rates should be above the Treasury Bill rate.

“Due to the uncertainty that existed, this structure has not yet aligned properly. It will be aligned properly in the next few months,” he added.

Last week, the Average Weighted Prime Lending Rate (AWPLR) dropped below 12.5% for the first time since April 2022 and the 3-month Treasury Bill rate stood at 14.5%.

Further, Dr. Weerasinghe said that when the economy is moving forward if the inflation can be maintained at 5% then keeping the policy rates between 7.5-8% is sufficient to control the inflation.

“If the policy rates are 2% more than the inflation then it will be seen as a balanced monetary policy,” he said.

However, he explained that the middle rate of the policy rates is still at 9.5% and under normal circumstances, it should drop further to keep the inflation at 5%.

As of the last monetary policy review, The Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) are at 9%  and 10% respectively.