Sri Lanka businesses should bring down prices after tax cut: President

ECONOMYNEXT – Sri Lanka’s businesses should bring down prices after tax cuts were made by the government President Gotabaya Rajapaksa said making his inaugural address to parliament.

“Business have been given benefits by bringing down taxes,” President Rajapska said.

“They should now pass on a reasonable amount by cutting prices.”

Commodities including rice, wheat and coconut have soared over the past month, taking the new administration by surprise.

The administration has come under fire for its close links with an oligopoly of rice millers. The government cut taxes on wheat ending a state protected duopoly of millers to bring down wheat prices.

Sri Lanka’s rupee’s collapsed in 2018, after call money rates were targeted by printing tens of billions of cash, mis-targeting real money demand as credit recovered leading to a run in the rupee.

Rates were cut and money printed in 2018, despite the US tightening policy, leading to an inevitable collapse of the rupee from 153 to 182 to the US dollar.

To stop the currency crisis, liquidity was reined, helping prevent an inflationary meltdown, but an output shock with growth falling.

Most businesses held prices with difficulties in recovering credit despite higher costs from the currency collapse.

Analysts had warned that inflation would spike as credit recovered. There is also a global commodity price pick up.

Excess liquidity in the banking system was also pumped up in December, with excess banks dumping over 50 billion rupees in the central bank.

Sri Lanka has the worst performing central bank in South Asia after Pakistan running to the International Monetary Fund after monetary instability. (Colombo/Jan03/2019)