In a move to enhance liquidity within the banking system, the Central Bank of Sri Lanka has decided to reduce the Statutory Reserve Ratio (SRR) for Licensed Commercial Banks (LCBs). The Monetary Board’s decision, made on August 8, 2023, will see the SRR drop by 200 basis points, from 4% to 2%, effective from the reserve maintenance period starting August 16, 2023.
The primary objective behind this reduction is to infuse liquidity into the banking system and alleviate the persistent market liquidity deficit. This strategic step aligns with the Central Bank’s current monetary policy stance. By releasing approximately Rs. 200 billion into the domestic money market, this move is expected to have a lasting impact on the economy.
The decrease in the SRR is anticipated to trigger a series of positive effects. Notably, it will lead to a reduction in the cost of funds for LCBs, which, in turn, will facilitate the lowering of market lending rates. This shift is poised to bolster credit flows to the broader economy, thereby fostering economic growth.
