Sri Lanka forces commercial lenders to money markets

Bloomberg

In a bid to force commercial lenders to participate in the domestic money markets, Sri Lanka’s central bank capped their ability to tap an emergency liquidity window to a maximum five times per month.
“The Central Bank of Sri Lanka has decided to impose restrictions on the availability of the Standing Facilities to Licensed Commercial Banks under the Open Market Operations,” it said in a statement.
Effective from January 16, the Standing Deposit Facility, or the overnight deposit facility that allows banks to park their excess liquidity and earn interest, “will be limited to a maximum of five times per calendar month.”
The central bank said it will also cap the liquidity available through Standing Lending Facility, where money can be borrowed by keeping securities as collateral, to 90% of its Statutory Reserve Requirement. The SRR is currently pegged at 4% of the deposit base of any bank.
Sri Lanka’s banks have shunned the money markets ever since the economy fell deep into recession last year, and have parked their excess liquidity with the central bank instead. The central bank said the unprecedented measures would reduce over-dependence of lenders on itself,
and support the reactivation of the domestic money market, “which remained nearly inactive for the last few months.”