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Thursday June 8th, 2023

Sri Lank tea prices inflate steeply after currency collapse

ECONOMYNEXT – Sri Lanka’s tea prices which inflated sharply soared in rupee terms after the collapse of the soft peg with the US dollar, continue to attract good prices, market data showed.

Prices rose sharply in May but eased somewhat towards the end of the month.

In rupee terms, the national average which was 692 rupees at the end of January 2022 rose to 1362 rupees after the currency collapse.

In Sri Lanka Mercantilists and soft-peggers usually claim that inflation comes from imported prices. However, prices of all traded goods, whether imported or exported go up when the central bank prints money to depreciate the currency.

Global prices also go up in dollar terms (commodity booms) when the US Federal Reserve prints money. At the moment commodity prices are booming due to the so-called ‘Powell Bubble’ the worst since the Greenspan-Bernanke bubble which broke in 2008/2009.

In US dollar terms the national sale average on May 31 was 3.6 dollars a kilogram compared to 3.18 last year.

At the May 4th sale auction during May 31-June 01, high grown gained, Ceylon Tea Brokers, a Colombo-based tea brokerage said.

High-grown ex-Estate, had seen an increased demand selling 1 million kilograms whereas in the previous week it had sold only 0.94 million kilograms.

Low grown leafy or tippy variety, another top seller however had seen a drop in demand selling only 6.7 million kilograms compared to 6.42 million kilograms in the previous week.

Low Growns

Low growns attract the highest prices for Ceylon Tea.

Last week the Low Grown Tea sale average was 1,538.90 rupees, down from 1,579.39 rupees in the previous week.

BOPF tea prices had eased while few Select Best had been firm.

OP and OPA Well-made varieties were firm, whilst the balance and bottom advanced.

Select best FBOP/FBOP1 were firm while others eased.

BOP Select Best and best were firm while others eased.

High Growns

Last week, the High Grown auction average was tea sale average of 1,098.64 rupees.

In BOP teas, Best Westerns gained by 50-100 rupees a kilogram. Below best and Plainer gained 100 rupees. Nuwara Eliya’s were firm to dearer. Uda Pussellawa gained by 30-50 rupees per kilogram. Uva’s too gained by 100 rupees per kilogram.

In BOPF category, Best Westerns were 30-40 rupees dearer a kilogram while the others gained to a lesser extent.

Below best lost 30-50 per kilogram while Plainer teas eased 50 per kilogram. Nuwara Eliya’s were irregular and mostly lower. Uda Pussellawa’s declined by Rs.40-60/- per kg. Uva’s too were lower by a similar margin.

Medium Growns

Last week, the Medium Grown auction average was 1,135.53 rupees down from 1,180.34 rupees from a week before.

This week, Select best and best OP/OPA’s gained 50-100/ rupees per kilogram.

BOPF in general were firm to dearer.

Select Best FBOP/FBOPF1 overall gained by 50-100 rupees per kilogram.


High grown BP1s had hardly any offerings while PF1 eased by 50 rupees a kilogram.

Mid grown BP1s were unsold while PF1s declined by 60-80 rupees per kilogram.

Low grown BPIs declined by 100 rupees a kilogram, while better PF1 teas gained 150 rupees while the rest were irregular.

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Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed as deflationary policy and weak credit reduced ‘above the line’ outflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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