CB’s new credit schemes amidst criticism from President
The Central Bank on Tuesday announced new credit schemes under Section 83 of the Monetary Law Act No. 58 of 1949, amidst strong criticism from President Gotabaya Rajapaksa that the banking regulator had failed to stimulate the economy during the COVID-19 pandemic.
The decision was taken by the Monetary Board to support the government’s efforts to revive the economy which has been adversely affected by COVID-19.
Earlier on Tuesday, President Rajapaksa, at a meeting with the officials led by the Governor of the Central Bank, said: “Look at this headline. ‘ The AFED ( Arab Forum for Environment and Development) commits to use a full range of tools to help the economy through unprecedented time’. What is the tool we have used? We have used nothing. Our Central Bank has not done anything towards this. Monetary and Fiscal Policy has been formulated by the Central Bank.
That should be done in accordance with the economic policy of the President of the country. If you are not on the same page with my suggestions please give me your strategies to revive our economy by tomorrow morning. Give me your suggestions on how to strengthen the economy, how to assist banks under these dire circumstances, how to categorically assist small scale and medium scale businesses. If what I say is wrong, do not hesitate to let me know,” he has said, according to a statement issued by his office.
The CB statement late on
Monday said that in addition to the already disbursed Rs. 27.5 billion under the refinance scheme introduced on March 27, the bank will provide funding to Licensed Commercial Banks (LCBs) at the concessionary rate of 1 per cent against the pledge of a broad spectrum of collateral, on the condition that LCBs in turn will on- lend to domestic businesses at 4 per cent, while ensuring the greatest possible distribution of this facility.
This scheme along with the existing refinance scheme will provide Rs. 150 billion in total to the businesses affected by the COVID-19 pandemic.
“In addition, the construction sector enterprises will be provided with a facility to borrow from LCBs, using guarantees issued by the government equivalent to the amount due on account of contracts carried out in the past, under a new dedicated credit scheme funded by the Central Bank and made available at the aforementioned concessionary rates. Operating instructions on these new credit schemes will be issued in immediate due course, the statement said.
In a separate decision, the CB also further decided to reduce the Statutory Reserve Ratio ( SRR) applicable on all rupee deposit liabilities of licensed commercial banks ( LCBs) by 200 basis points to 2 per cent, with effect from the reserve maintenance period that commenced on June 16, in another effort to stimulate the economy.
This reduction in the SRR injects around Rs. 115 billion of additional liquidity to the domestic money market, enabling the financial system to expedite credit flows to the economy, while reducing the cost of funds of LCBs. “With today’s decision, the CB has reduced the SRR by a total of 300 basis points thus far during 2020, in addition to several other easing measures implemented already, including the reduction of policy interest rates by a total of 150 basis points and the reduction of the bank rate by 550 basis points,” a CB statement said.
Give me your suggestions on how to strengthen the economy, how to assist banks under these dire circumstances, how to categorically assist small scale and medium scale businesses. If what I say is wrong, do not hesitate to let me know,” he has said, according to a statement issued by his office