Prime lending rate hits fresh low indicating room for lending rates to come down further

• AWPLR has so far fallen by a total of 408 bps or 4.08%

The prime lending rate touched another fresh low last week, signaling that downward trend of lending rates is not yet over, while underscoring Monetary Board’s claim about more wiggle room for rates to respond to rate cuts. 

According to the latest data available for the week ending December 11, the Average Weighted Prime Lending Rate (AWPLR) fell by 5 basis points (bps) to 5.66 percent, the lowest on record from 5.71 percent in the previous week. 

With last week’s decline, AWPLR has so far fallen by a total of 408 bps or 4.08 percent, the most on record.
The Monetary Board on November 26 reiterated that banks are required to pass on the full benefits of the monetary policy action via lower lending rates, indicating that such action have still more room to run their course. 
The excess market liquidity in the money market recorded a surplus of Rs.232.77 billion by December 11 compared to a surplus of Rs.234.95 billion in the previous week. 

The government of President Gotabaya Rajapaksa has clearly shown its interest in creating a solid industrial base for Sri Lanka, which was disrupted by the sudden introduction of open economic policy in 1978.

Maintaining of single-digit interest rates is critical in this endeavour, so that industries have access to relatively cheap capital to boost their production and invest in new ventures.

While free trade is arguably the best tool for growth in the present global context, a country may need to deploy some protectionist measures to build its industrial base before opening its market fully by supporting domestic industries within a time frame, so that they can build up their scale and niches to compete in the international market place. 

Majority of the developed countries including the Great Britain, USA and many other European nations, who now try to shove free and open trade down the throats of developing nations such as Sri Lanka, did the same before becoming developed economies.