Prime rate falls below 11.0%, lowest since CB’s jumbo policy rate hike in 2022

In a sign of further declining market lending rates, the average prime rate fell by a further 35 basis points last week bringing the benchmark rate to settle below 11.0 percent, lowest since April 2022 when the Central Bank raised policy rates by a bumper 700 basis points to rein in the runaway inflation at the time.

According to the latest data, the prime rate, the benchmark lending rate used by the licensed commercial banks to price the loans to their most prime clients for loans, settled at 10.69 percent for less than three months, compared to 11.04 percent a week ago.
Last week’s rate was the lowest from about two years ago on April 8, 2022 when the rate was at 10.44 percent, close on the heels of the Central Bank’s jumbo policy rate hike explained above.

The latest slide in the benchmark rate came in response to the 50 basis points cut in policy rates by the Central Bank last week, as the cooling inflation gave them space to cut rates to further influence market rates to come down and thereby channel more money into the real economy.

Prime rate is a leading indicator for rest of the lending rates in the market for small business loans to mortgages to consumer loans.
With the latest move, the prime rate has shed 144bps year-to-date and fallen by 1,898bps from its recent peak level of 29.67 percent in November 2022.
Since the announcement of the monetary policy action last week, banks’ marketing teams turned busier in communicating and promoting their newly reduced loans and lease rates to their existing and new ones.

Calls and text messages started coming in, one after the other, communicating their newest lending rates which were lower than a week ago.
It appears that the banks have received the message loud and clear that they are going to go in to a lower interest rates era once again and thus need to step up their game.
The Central Bank repeatedly said including in their latest policy statement that they want the banks to swiftly pass down the benefit of the easing monetary policy to the borrowers.
Sri Lanka is slowly shifting from what was a vicious economic cycle to a virtuous one with low rates and positive economic sentiments.