ECONOMYNEXT – Sri Lanka’s central bank said it was developing a cost based benchmark interest rate to price loans, hoping unusually that it will improve competition.
“Establishing a sound benchmark interest rate for the banking sector, which reflects actual cost of funds, has become vital given the deficiencies of the existing benchmark interest rates,” the central bank said in a roadmap for monetary policy in 2020.
“The Central Bank intends to set up a task force with the participation of relevant stakeholders to introduce an appropriate cost reflective benchmark interest rate for pricing loan products.
“We believe that this measure will improve healthy competition among banks, while supporting efficient transmission of monetary policy measures.”
It is not clear how cost-based pricing will improve competition as the key drawback of cost-based pricing is that it ignores that there is competition as rookie business studies students learn.
With competition eliminated, the regulator then has to set targets to bring costs of various components down as is done in telecom, power cost based pricing.
Costs can differ widely from bank to bank, based on how inefficient, or overstaffed each bank is. Any cost based pricing would eliminate the need to cut costs due to competition, a key problem with formula based pricing.
There have already been complaints that high costs of state banks, which command large shares of deposit and loan markets is a reason for high nominal rates.
Sri Lanka has high and volatile interest rates, a phenomenon common in countries with monetary instability and currency depreciation.
Sri Lanka’s central bank last year killed competition in deposit markets by forcing banks to artificially bring down rates on the threat of punitive action after destroying the real value of customer deposits through currency depreciation.
See Also
Sri Lanka rupee ends weaker, gilt yields fell
Slow Sri Lankan regulations delay Dialog Finance's fintech innovations
Sri Lanka stocks plunge 2-pct, dives below 6,000
Sri Lanka President orders quick construction permits
Avirate fashion of Sri Lanka to continue global expansions in tie-up with Expolanka
Analysts have called for monetary reform either in the form of consistent peg, or a genuine floating rate, which will end balance of payments trouble. (Colombo/Jan08/2020)
» CCS.N0000 ( Ceylon Cold Stores)
» Sri Lanka plans to allow tourists from August, no mandatory quarantine
» When Will It Be Safe To Invest In The Stock Market Again?
» Dividend Announcements
» MAINTENANCE NOTICE / නඩත්තු දැනුම්දීම
» ඩොලර් මිලියනයක මුදල් සම්මානයක් සහ “ෆීල්ඩ්ස් පදක්කම” පිළිගැනීම ප්රතික්ෂේප කළ ගණිතඥයා
» SEYB.N0000 (Seylan Bank PLC)
» Here's what blind prophet Baba Vanga predicted for 2016 and beyond: It's not good
» The Korean Way !
» In the Meantime Within Our Shores!
» What is Known as Dementia?
» SRI LANKA TELECOM PLC (SLTL.N0000)
» THE LANKA HOSPITALS CORPORATION PLC (LHCL.N0000)
» Equinox ( වසන්ත විෂුවය ) !
» COMB.N0000 (Commercial Bank of Ceylon PLC)
» REXP.N0000 (Richard Pieris Exports PLC)
» RICH.N0000 (Richard Pieris and Company PLC)
» Do You Have Computer Vision Syndrome?
» LAXAPANA BATTERIES PLC (LITE.N0000)
» What a Bank Run ?
» 104 Technical trading experiments by HUNTER
» GLAS.N0000 (Piramal Glass Ceylon PLC)
» Cboe Volatility Index
» AHPL.N0000
» TJL.N0000 (Tee Jey Lanka PLC.)
» CTBL.N0000 ( CEYLON TEA BROKERS PLC)
» COMMERCIAL DEVELOPMENT COMPANY PLC (COMD. N.0000))
» Bitcoin and Cryptocurrency
» CSD.N0000 (Seylan Developments PLC)
» PLC.N0000 (People's Leasing and Finance PLC)
» Bakery Products ?
» NTB.N0000 (Nations Trust Bank PLC)
» Going South
» When Seagulls Follow the Trawler
» Re-activating
» අපි තමයි හොඳටම කරේ !
» මේ අර් බුධය කිසිසේත්ම මා විසින් නිර්මාණය කල එකක් නොවේ
» SAMP.N0000 (Sampath Bank PLC)
» APLA.N0000 (ACL Plastics PLC)
» AVOID FALLING INTO ALLURING WEEKEND FAMILY PACKAGES.
» Banks, Finance & Insurance Sector Chart
» VPEL.N0000 (Vallibel Power Erathna PLC)
» DEADLY COCKTAIL OF ISLAND MENTALITY AND PARANOID PERSONALITY DISORDER MIX.
» WATA - Watawala
» KFP.N0000(Keels Food Products PLC)
» Capital Trust Broker in difficulty?
» IS PIRATING INTELLECTUAL PROPERTY A BOON OR BANE?
» What Industry Would You Choose to Focus?
» Should I Stick Around, or Should I Follow Others' Lead?