Central Bank to lower interest rates for MSMEs

By Nishel Fernando 

The Central Bank yesterday announced plans to reduce the high interest rates on the credit facilities extended to the micro, small and medium-sized enterprises (MSMEs), in close collaboration with the financial institutions.

Central Bank Governor Dr. Nandalal Weerasinghe, delivering the Central Bank’s Policy Agenda for 2025 and beyond, admitted the excessive interest rate burden on the MSMEs, despite a general decline in the market lending rates. He emphasised that while the risks associated with lending are decreasing and the credit appetite is improving, certain sectors still face disproportionately high rates.

“The Central Bank will closely work with the banks and other financial institutions to reduce the excessive interest rates still prevalent in the market,” Dr. Weerasinghe stated.

The Central Bank expects continued economic recovery in 2025, supported by the accommodative monetary policy and improving business sentiment. The contraction in credit to the public sector has freed up resources for private sector investment, which is expected to boost economic growth.

Dr. Weerasinghe highlighted that inflation has been successfully brought down to low levels, resulting in positive real returns on deposits. The Central Bank will continue to adjust the interest rates to maintain low and stable inflation while supporting sustained economic growth. 

The Central Bank anticipates a period of deflation in early 2025, due to the one-off supply-side price adjustments. However, inflation is projected to return to the target level of 5 percent later in the year.

Dr. Weerasinghe emphasised that this temporary deflationary period would provide some relief to the public by reducing the cost of living.

Further, the Central Bank opined that the financial industry would be compelled to come up with innovative saving products, under the low-interest-rate environment.

Amidst these developments, to ensure that the domestic savings are promoted in a low-interest-rate environment, the financial industry is encouraged to introduce innovative solutions and products to promote savings, in the context of the rapidly ageing population, while also embedding elements of liquidity and safety to compensate for the interest rate volatilities during business cycles. 

“The culture of saving at an earlier stage of life should be nurtured, which will not only promote long-term savings but will also ensure greater financial security for a better life after retirement,” Dr. Weerasinghe elaborated.