Restrictions imposed on banks parking their excess liquidity with the Central Bank have been lifted.

The Central Bank yesterday said the 5 percent Standing Deposit Facility (SDF) rate was withdrawn with effect from March 2, 2015.

In September last year, the Central Bank rationalized access to SDF with a view to encourage commercial banks to utilize the excess liquidity for lending as the credit growth was lagging.

Consequent to the rationalization of the SDF, overnight interest rates fell below the policy rate corridor, and the special SDF rate of 5 percent become the effective floor for overnight money market rates.

According to the Central Bank, this resulted in a faster downward adjustment in market interest rates during the last few months as most market interest rates reached historically low levels in nominal terms.

Private sector credit growth also picked up towards the latter part of 2014. By end 2014, credit to private sector grew 8.8 percent year-on-year.

“Given the signs of sustained increase in credit flows to the private sector, the view of the Central Bank was that restrictions placed on the access to SDF are no longer required”. 

The Central Bank is also of the view that the removal of the restrictions would help stabilize overnight interest rates within the policy corridor of the bank.