CB eases liquidity requirement for banks – Business News

In a bid to ease liquidity conditions in banks, the Central Bank has issued new instructions allowing them to temporarily remove the requirement to report the Statutory Liquid Assets Ratio (SLAR) separately for domestic and offshore banking units. and instead allowed the ratio to be reported on a consolidated basis, beginning in December. Licensed commercial and specialty banks are required to maintain a minimum of 20% and a maximum of 40% of their adjusted liabilities in liquid assets, which are typically invested in treasury bills and bonds.

However, in a recently issued Banking Law Directive, the Monetary Board took the decision to allow licensed commercial banks “to retain liquid assets in the amount of at least 20% of total adjusted liabilities, on a consolidated basis for the whole bank, until further notice”. Therefore, the circulars in force so far stipulating the obligation to maintain the SLAR separately for the domestic banking unit and the offshore banking unit are temporarily postponed by the latest published directive.

The new instructions on bank liquidity came just days after Central Bank Governor Dr Nandalal Weerasinghe identified the lack of rupee liquidity in the banking system as one of the reasons for the higher level than desired short-term interest rates in the country. market.

Thus, he said he would intervene to ease the liquidity condition in the banking system.
“In the next two weeks, we will try to remedy this situation in terms of liquidity as a first step in stabilizing short-term interest rates,” he added.

The Central Bank is under enormous pressure to mitigate the current high level of interest rates and, in particular, Dr Weerasinghe has become a lightning rod, receiving harsh criticism for stifling the economy.

However, the Central Bank has made controlling runaway inflation its top priority, as maintaining price stability is the core mandate of any central bank.

Although his actions have started to show results, with the country entering a possible disinflation path in October, after inflation peaked at just under 70% in September, these inflation levels are not helping the businesses and households to engage in their usual economic activities.

Thus, central bank actions aimed at bringing inflation down to an acceptable level of 4-6% take precedence over everything else to create conditions conducive to business, create jobs and generate economic well-being by preserving incomes. Household.