The Central Bank of Sri Lanka (CBSL) says it has decided to relax the restrictions imposed on the standing facilities to Licensed Commercial Banks (LCBs) under the Open Market Operations (OMOs).

Accordingly, with effect from the reserve maintenance period commencing 16 February 2024, the restriction on the Standing Lending Facility (SLF) will be removed and the restriction on Standing Deposit Facility (SDF) will be relaxed from 5 times to 10 times during a calendar month.

This was decided at the special meeting of the Monetary Policy Board held on Wednesday (Feb.07).

The CBSL put restrictions on the usage of standing facilities by the LCBs under the OMOs with effect from 16 January 2023. As such, access to the SDF was limited to a maximum of 5 times per calendar month, while access to the SLF was limited to 90% of the Statutory Reserve Requirement (SRR) of each LCB, at any given day.

These measures were imposed with the intention of reducing the overdependence of LCBs on the overnight facilities offered by the Central Bank, supporting the reactivation of the domestic money market, particularly the call money market, and inducing LCBs to introduce internal corrective measures.

However, the Central Bank has observed that these measures have yielded positive outcomes by way of reactivating the domestic money market and curtailing excessive competition for deposit mobilisation among financial institutions.

The Central Bank further said these measures were also instrumental in inducing a moderation in the market interest rate structure in line with the monetary policy stance, while preserving stability of financial institutions and the financial system.

On that account, the Monetary Policy Board, at its meeting held on Wednesday, decided to relax the restrictions imposed on the standing facilities to LCBs under OMOs after carefully reviewing the developments in the domestic money market, as well as the behaviour of LCBs in terms of market participation along with the improvements in liquidity.

Accordingly, with effect from the reserve maintenance period commencing 16 February 2024, the restriction on the SLF will be removed and the restriction on SDF will be relaxed from 5 times to 10 times during a calendar month.

The relaxation of the restrictions on the standing facilities is expected to accelerate the downward adjustments in market interest rates as envisaged under the overall monetary policy direction of the Central Bank.