The Central Bank yesterday issued new instructions for licensed commercial banks and the National Savings Bank to follow in determining what the maximum interest rates would be on deposits denominated in foreign currencies, effective today (December 31 2021).
According to the guidelines, banks are required to offer a maximum yield of 5% or an average yield on 1-year treasury bills determined at auctions in the last calendar month of the previous quarter, less 150 basis points, for deposits with a term of one year or less. .
And for deposits, “with a maturity of more than one year will be determined based on market behavior,” said the ordinance on the Monetary Law Act issued yesterday.
This slightly modifies the previous directive, which was based on the single criterion of not exceeding the annual effective interest rate of 5% per annum for foreign currency deposits, issued on August 24, 2021.
The Central Bank decided in August to cap the maximum interest rate offered on foreign currency deposits in an attempt to deter exporters and others holding dollars in foreign currency deposits, with the aim of solving the shortage in the domestic market. currencies.
This order follows the central bank hike in key rates by 50 basis points on August 19 to resolve anomalies in the foreign exchange market by reducing the interest rate differential in the rupee and dollar markets.
The new decree will apply to new deposits in foreign currencies, savings deposits in existing currencies and when renewing term deposits in currencies.
However, the special deposit accounts currency introduced last year will continue to receive the additional 2.0% interest rates above the maximum interest rate determined under new guidelines released yesterday.
In this week’s primary auctions, the yield on 1-year bills jumped 22 basis points to 8.24%.
In the meantime, by giving instructions on the cost of the swap between USD / LKR, the Central Bank asked the banks to execute these swap transactions subject to a maximum interest rate in US dollars of 10% per annum. .
“Accordingly, the USD / LKR swap points will be prorated based on the above benchmark USD interest rate for the respective terms until further notice,” the order says.