Chambers hail lending rates reduction:

Welcome move

Indunil HEWAGE and Charumini DE SILVA

Several business chamber leaders hailed the Central Bank’s measures to reduce bank interest rates on lending. They also said that it will improve economic activities in the country.

Ceylon Chamber of Commerce President Dr Anura Ekanayake said the further reduction of interest rates is a welcome move and it will help in accelerating investments in all aspects of the economy in the country.

Dr Anura Ekanayake

Dakshitha Thalgodapitiya

Sarath de Silva

Tissa Jayaweera

“Reducing interest rates on housing loans will benefit every individual in the country as the housing sector is an important part of economy.

The cost of the houses will also reduce with the timely move taken by Central Bank,” he said.

“This will be an impetus to promote the future and existing economic activities in the country.”

Chamber of Construction Industry Secretary General and CEO Dakshitha Talgodapitiya said reduction in interest rates on housing loans to 14 percent will stimulate further growth in the construction sector which has recorded a 9.3 percent high growth rate for second quarter of 2010 compared with the growth of 5.4 percent in the second quarter last year.

“We would expect larger disbursement of loans for development of houses and property developments, which will also influence increase in cement production and other construction related manufacturing sectors,” he said.

He said growth in the construction industry through enhanced investments and housing construction will also influence growth in the other sub sectors such as mining and quarrying. With interest rates on other loans and advances to be adjusted downwards by around 1-2 percent, the number of stalled property development projects could be restarted.

The construction industry which has experienced difficult times in the recent past will no doubt breathe a sigh of relief,” he said.

National Chamber of Exporters of Sri Lanka President Sarath De Silva said rates on credit cards are unusually very high and most of the commercial banks with foreign origin are charging high rates on credit cards in a very big way and rates should be brought down to a single digit.

The cost of finance will also come down drastically when it comes to the export market in the country with the reduction of rates on lending,” he said.

International Chamber of Commerce Chairman Tissa Jayaweera said people will borrow money from banks more than before with the reduction of interest rates on housing loans and other loans and it will expand the economic activities in the country bringing more benefits for the country and the people.

“The Central Bank has requested commercial banks to reduce interest rates as market rates are still declining in response to previous rate reduction”, Central Bank Governor, Ajith Nivard Cabraal told Daily News Business.

Another Central Bank senior official said the Central Bank took this decision to accelerate the reduction of interest rates in the market. “We expect that this would facilitate to fast tract the economic development of the country while sharing the reduced interest rate benefits with the investors,” he said.

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[ Banks to reduce lending rates]

The Central Bank has requested all banks to take measures to reduce interest rates by end October.

The Central Bank has requested that interest rates on housing loans to be brought under 14 percent per annum and interest rates on credit card advances to be brought 24 percent per annum.

It has urged banks to adjust interest rates on other loans and advances downwards by around a further 1-2 percent per annum.

Since February 2009, the Central Bank has eased its monetary policy stance by reducing the policy rates, the Repurchase rate and the Reverse Repurchase rate by 325 basis points and 300 basis points, respectively.

In response, the market interest rates have also adjusted downwards.

The banks’ lending rates have also declined with a time lag, but are yet to show full downward adjustment.

At the same time, the current macro economic performance and stability warrant a reduction in the risk premia added to lending rates, thus leading to the spread between lending rates and deposit rates of banks reducing further, the Central Bank said in a statement yesterday.