Saturday, 11 July 2020 20:21

Economists express concern on public benefits of interest rate drop

The sudden drop in market interest rates offered by banks may not be beneficial as it seems, analysts said, as the Average Weighted Prime Lending Rate (AWPR) slid to 8.48 percent in June with compared to 11.52 percent year ago.

Central Bank’s (CBSL) reduction of policy rates beyond a certain point may not expand credit growth as targeted by the Government because banks have limited risk appetite.

ICRA Lanka, which is part of Moody’s Investor Services, acknowledged steady credit flow to the real economy is imperative for the post-COVID19 recovery.

But it noted that in order to facilitate this, the CBSL needs to ensure financial institutes have both the capacity and the willingness to lend.

ICRA Lanka noted that financial institutions were on a weaker footing even before the COVID-19 crisis due to the Basel III capitalisation requirements, the deterioration in asset quality, and dwindling profitability due to macro factors.
But in reality, with the current economic situation, it may not that easy for the general public to restructure the expensive loans, they added.
Youth who actually lost jobs or have got salary cuts may have a difficulty in obtaining loans,” an economic analyst claimed.


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