CB orders cut in credit card interest rates

Reuters: The Central Bank has told commercial banks to cut the interest rate charged on credit card advances by 4% points in a bid to reduce other lending rates, the Deputy Governor said on Tuesday.

A Central Bank directive asked commercial banks to reduce rates on advances to 24% from 28% and reduce the lending rates on all other loans “so as to not exceed 24% per annum”.

Though yields on Treasury bills have declined between 199-228 basis points since the Central Bank slashed policy rates on December 2012, banks’ rates on commercial loans have declined only by around 100 basis points and remain around 18%, bankers say.

The central bank kept key policy rates steady last Friday. The repurchase rate and the reverse repurchase rate are at 7% and 9% respectively.

“We don’t think banks should be charging 28% for credit cards,” Deputy Central Bank Governor Nandalal Weerasinghe told Reuters.

“With this direction, we think they will bring down the other interest rates as well.”

After Friday’s meeting, the Central Bank Governor said commercial banks’ lending rates should be less than they are, and the difference between those rates and inflation should be between 3% and 5% points, rather than the current eight points.