The Central Bank of Sri Lanka (CBSL) has decided to impose restrictions on the availability of the Standing Facilities to Licensed Commercial Banks (LCBs) under the Open Market Operations (OMOs) of CBSL, without considering market-based funding options to address their structural liquidity needs.

Accordingly, effective from 16 January, the Standing Deposit Facility (SDF) -- the overnight deposit facility that allows LCBs to park excess liquidity and earn interest -- will be limited to a maximum of five (05) times per calendar month. 

Meanwhile, the Standing Lending facility (SLF), which is the collateralized facility provided for LCBs to fulfill any further shortage of the liquidity requirements from the Central Bank at the end of the day, would also be limited to 90% of the Statutory Reserve Requirement (SRR) of each LCB at any given day.

The decision was reached after it was observed that several LCBs have continued to depend excessively on the overnight Standing Facilities under CBSL’s OMOs, CBSL stated in a notice issued in this regard.

Although OMOs have been made available to be used as fallback options after utilizing all other funding options, CBSL noted that as several of these LCBs show no signs of adapting to remedial measures in this regard, such actions continue to affect the efforts of the Central Bank to reactivate the money markets.

Such LCBs also stand to pose a threat to the smooth channeling of funds in the economy with a possibility of clogging the payment and settlement systems, CBSL warned.