Whether this is being implemented is a matter for conjecture as official data, as provided by Central Bank of Sri Lanka's (CBSL's) weekly economic indicators is more focused on giving an update on lending rates, rather than on deposit rates.
Sri Lanka's savings rates, according to CBSL's data, which covers only up to June, had come down to as low as under 2% in the case of certain banks' deposit rates.
Such rates however, may be normal in countries like the USA, which have a low inflationary rate regime, coupled with benefits to its citizens, senior or otherwise, befitting a rich economy, such as free insurance cover to all, which however, is absent here with a poor life insurance coverage, encapsulating only under 10% of the citizens of this island, as per available statistics.
And, paradoxically, the prices of certain essentials in the USA are less than that of developing Sri Lanka, such as the prices of milk and petrol (Rs 90 a litre as opposed to it being nearly double that price at Rs 157 here).
Therefore, ipso facto a low interest rate regime, administratively instituted or otherwise, doesn't necessarily fit the bill of a developing economy such as Sri Lanka due to the aforesaid reasons connected with the pushing of the cost of living (though the authorities say otherwise), because of its impact on savers and more so, those who depend on interest earned from their fixed income investments, for theirs and their families' survival.
According to market sources, the current low interest rate regime is administratively imposed by the authorities, to induce investors to 'chance their arm' on the riskier stock market in order to make the latter grow.
In fact, CBSL Governor Ajith Nivard Cabraal is on record of having said that with a low interest rate regime in operation, fixed income investors should look at other avenues of investments in order to get a better return on their savings.
But Sri Lanka's stock market has a dubious record. A number of investors, not least pensioners and those of the same ilk, got their fingers burnt in 2011 after the stock market bubble burst, in the immediate aftermath of such a bubble being created, beginning with the post-war hype of 2009.
None of those responsible for creating this artificial bubble, which defrauded savers of literally speaking millions of rupees after it burst, has thus far being prosecuted by the authorities who are supposed to regulate the stock market.
When the integrity of the Colombo bourse is in doubt, artificially creating a low interest rate regime in order to make savers once more chance their arm on the bourse, after getting their fingers burnt previously, is akin to the condoning of another criminal act, the first being the perpetrators of the first post-war stock market bubble being allowed to go scot free.
This is no better than betting or gaming. That is good for gamblers, but not for savers.
Another reason attributed for the creation of a low interest rate regime is to spur borrowings in order for the economy to grow. Private sector credit growth on a year on year basis has perilously fallen to the low 2.6% level as at August, according to latest CBSL data. This compares to a double digit private sector credit growth even in the dark days of Sri Lanka's long drawn out 26-year-old terrorist war.
The private sector is considered as the engine of economic growth.
On top of such negative economic data, foreign direct investments have also entered a negative cycle. This has prompted market sources to say that what has befallen the economy is the political system and related policies, which, more often than not are inconsistent and not investor friendly.
They further said the present low interest rate regime is not dissimilar to the regime that prevailed in the 1970-77 closed economy era where growth was stagnant.
At present however, theoretically the country is showing a 7%+ growth by statistics dished out by the State authorities, but the question is whether there is a trickle down effect of such high growth levels to the masses of this country?
Apparently not among savers who depend on the interest earned from their fixed income investments for their survival.
A 'wrong' move, which CBSL tried to reverse recently was a directive of it, issued with its monetary policy statement of 23 September, which said that banks parking their excess liquidity in CBSL's window, known by the nomenclature standing deposit facility (SDF), would be paid a lower interest rate of 5%, than the standard SDF rate of 6.5%, if such frequencies exceed more than three days per calendar month.
It further said it would abolish its repo facility, another window to absorb excess liquidity, until further notice.
But not even 10 days lapsed, when CBSL reintroduced its repo window, which currently absorbs excess liquidity, after paying banks the higher rate of 6%. Space doesn't permit to elaborate on the reasons behind CBSL's sudden policy shift.
Nevertheless, the government needs to treat the inefficiencies in the system, which has resulted in the artificial jacking up of prices of consumer essentials. This requires the stamping out of corruption and less and less of government in commercial activities.
It also needs the building up of strong and independent regulatory systems and not those which 'bow and scrape' to the establishment at the expense of the majority, supported by also have on board consistent policies.
It must allow market forces to realize price discovery not least interest rates.
Then only will sustainable economic and political stability be reached.
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