The Central Bank of Sri Lanka has announced the relaxation of restrictions on the usage of the Standing Facilities by Licensed Commercial Banks (LCBs) under the Open Market Operations (OMOs). The restrictions were initially imposed on January 16, 2023, to reduce LCBs' overdependence on overnight facilities and reactivate the domestic money market. The measures limited access to the Standing Deposit Facility (SDF) to a maximum of five times per calendar month and restricted access to the Standing Lending Facility (SLF) to 90% of the Statutory Reserve Requirement (SRR) of each LCB. These measures aimed to induce LCBs to implement internal corrective measures and curb excessive competition for deposit mobilization among financial institutions. The restrictions have successfully reactivated the domestic money market and curtailed excessive competition. However, after reviewing the developments in the domestic money market and the behavior of LCBs, the Monetary Policy Board has decided to relax the restrictions on the Standing Facilities. Starting from February 16, 2024, the restriction on the SLF will be removed, and the restriction on the SDF will be relaxed from five times to ten times during a calendar month. The relaxation of these restrictions is expected to accelerate the downward adjustments in market interest rates [45e793b4].
