FINANCIAL CHRONICLE – The Central Bank of Sri Lanka does not intend to implement stricter loan-to-value ratio limits on gold loans, according to Deputy Central Bank Governor Chandranath Amarasekera.
In global markets, gold prices have surged to approximately $5,000 per ounce, a significant increase from $284 around the year 2000, when the Federal Reserve cut interest rates to stimulate inflation amid concerns of ‘deflation’. After peaking at $5,500 per ounce, gold prices later declined but have since stabilized around the $5,000 mark.
Following a similar steep rise and subsequent fall in gold prices during 2012 and 2013, Sri Lankan banks and financial institutions faced challenges with non-performing loans. Many customers defaulted on their loans, leading banks to foreclose on gold that had depreciated in value.
Amarasekera noted that there is already a capital charge in place for gold, and lenders apply their own haircuts to gold loans.
Historically, gold was valued at $35 per ounce when macro-economists initiated ‘full-employment’ policies in the 1960s, based on the belief that there was a trade-off between employment and inflation. This strategy eventually contributed to the breakdown of the Bretton Woods system, resulting in unanchored currency and significant inflation in the 1970s.
The current high gold prices have been attributed to various factors, including abundant reserve regimes, speculative activities, and global uncertainty, exacerbated by tariffs imposed during the Trump administration and a renewed interest in gold by central banks. (Colombo/Feb19/2026)
