COLOMBO, Nov 24 (Reuters): Sri Lanka's central bank on Thursday threatened administrative intervention to control high market interest rates that it regarded as out of line with its policy rates and the outlook for falling inflation.
Any such action, interpreted by economists as a downward push, would cut high deposit rates and borrowing costs for business - and eventually, as depositors sought alternatives, for the government of the crisis-hit country.
The Central Bank of Sri Lanka (CBSL) also confirmed an expected decision to hold its two policy rates steady, citing a need to curb demand in the economy. The Standing Lending Facility rate was kept at 15.50 per cent and the Standing Deposit Facility Rate at 14.50 per cent.
"The Board noted with concern the anomalous rise in market interest rates, particularly deposit interest rates and short-term lending interest rates ..." the CBSL said in a statement announcing its policy decision.
"If an appropriate downward adjustment in the market interest rates would not take place in line with the envisaged disinflation path, the central bank will be compelled to impose administrative measures to prevent any undue movements in market interest rates," it said.
In a later press conference, CBSL Governor P. Nandalal Weerasinghe said challenges in government financing could be "managed with interest rates", indicating that the central bank wanted lower yields on public debt, too.
Market rates on government bonds and treasury bills are about twice as high as the policy rates for overnight money.
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