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Friday August 19th, 2022

Sri Lanka CB Governor meets envoy of forex reserve rich Bangladesh

A MORE CREDIBLE PEG: Bangladesh reserve money grew above target as the Taka was prevented from appreciating amid a slowdown in domestic credit which slowed outflows. The liquidity from NFA sharply lowered overnight rates. Similar outcomes were seen in stable pegs such as Vietnam where the overnight rate was allowed to fall to 0.2 percent.

ECONOMYNEXT – Sri Lanka’s central bank Governor Ajith Nivard Cabraal has met the High Commissioner for Bangladesh in Colombo, whose central bank has extended a 200 million US dollar swap to the island.

Governor Cabraal and the High Commissioner Tareq Md Ariful discussed “strengthening of economic ties and greater utilization of the Colombo Port for Bangladesh exports.”

Bangladesh Bank, the country’s central bank has given a 200 million US dollar swap to Sri Lanka’s central bank which has seen a run on its forex reserves as liquidity was injected into money markets to suppress rates.

As domestic credit slowed amid a Coronavirus pandemic, Bangladesh Bank (BB) has collected billions of dollars of new foreign reserves, in line with other countries that also have fairly credible pegs.

Bangladesh Bank runs a reserve money program with less discretionary power, compared to Sri Lanka which is operating a ‘flexible’ inflation target with contradictory domestic and external anchors and a obsessive control of short term rates with excess liquidity.

Backed by the credible peg Bangladesh’s balance of payments recorded a “sizeable surplus” of 9.2 billion US dollars up to June 2021 compared to 3.129 billion US dollars a year earlier, the central bank said.

“Relying on the this BoP surplus net foreign assets of the banking system saw a very strong growth of 275 percent alongside reaching BB’s foreign exchange reserves to a historically high level of USD 46.4 billion at the end of June 2021,” Bangladesh Bank said.

BB has kept is product, the Taka, around 83 to 84 to the US dollar from 2012, with monetary policy to support it, giving a strong foundation for stability and growth.

It follows a reserve money targeting exercise (a type of domestic anchor) which is more complementary to foreign reserve collection, though the peg can collapse if outflows are sterilized to keep rates down (reserve money starts to grow with acquisitions of domestic assets, which then drive private credit and outflows).

The last such collapse happened in 2010/2011 when the Taka fell to 83 from 68 to the US dollar.

In sharp contrast Sri Lanka follows a ‘flexible exchange rate’ an unusually non-credible peg with extreme anchor conflicts while printing money to push domestic inflation up to 6 percent, but frequently missing it and pushing it above that in many months.

In the same period Sri Lanka with a combination of call money rate targeting, high inflation targeting, real effective exchange rate targeting, has triggered four crises in 2011/2012, 2016/2016, 2018 and 2020/2021 which is ongoing.

The on going crises was engineered mostly with price controls on bond auctions and outright purchases of government securities.

In 2020 March as the currency fell sharply in a so-called sudden ‘flexible exchange rate episode’ with unusual helicopter drops of liquidity, panicking importers as usual, the Sri Lanka was downgraded.

As private credit collapsed amid lockdowns, the like Bangladesh Sri Lanka’s central bank also bought dollars and collected foreign assets but as private credit recovered more money was printed to keep rates down, hitting the exchange rate, triggering forex reserve losses.

Sri Lanka’s domestic credit is largely driven by a massive budget deficit coming from tax cuts in December 2019 driven by ‘stimulus’ ideology.

Rates were also suppressed due to ‘stimulus’ ideology. (Colombo/Sept26/2021)

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Sri Lanka schedules 3-hour power cuts for Aug 20, 21: regulator

ECONOMYNEXT – Sri Lanka will impose power cuts of up to three hours on Saturday August 20 and Sunday August 21, Public Utilities Commission (PUCSL) Chairman Janaka Ratnayake said.

All areas (A, B, C, D, E, F, G, H, I, J, K, L, P, Q, R, S, T, U, V and W) will have power cuts of 1 hours and 40 minutes between 10.30 am and 06.00 pm and 1 hour 20 minutes from 06.00pm to 10.00 pm.

Click here for a detailed schedule.

The state-run Ceylon Electricity Board (CEB) said supply interruption time and restoration time will vary within 30 minutes as indicated above.

Sri Lanka’s daily scheduled power cuts that were reduced to one hour in July with power generation from hydro power plants contributing more than 50 percent to the main grid reducing thermal power plant use was extended to three hours last week due to a breakdown at the Norochcholai coal power plant.

According to officials, the breakdown happened in Unit 1 of Norochcholai which will take around two weeks to repair.

The Minister of Power & Energy said Unit 2 is undergoing scheduled maintenance work while Unit 3 will continue to operate. West Coast and other fuel power pPlants will be used to manage the supply, the ministry said. (Colombo/Aug02/2022)

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Sri Lanka guidance peg edges T-bond yield edge down

ECONOMYNEXT – Sri Lanka Central Bank’s guidance peg for interbank transactions edged down on Friday (19), while yields in Treasury bonds picked up slightly and in T-bill remain unquoted in dull trade, a day after the Central Bank announced the policy rates will remain stable, dealers said.

A bond maturing on 01. 06. 2025 closed at 27.95/28.05 percent on Friday, slightly up from 27.90/28.00 percent on Thursday.

No T-bills were quoted on Friday, dealers said.

Meanwhile Sri Lanka’s central bank announced a guidance peg for interbank transactions further weakened by three cents to 361.00 rupees against the US dollar on Friday from 360.97 rupees.

Data showed that commercial banks offered dollars for telegraphic transfers between 368.00 and 370.00 for small transactions.  (Colombo/ Aug 19/2022)

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Sri Lanka records 10 new COVID-19 deaths in 48 hours as case numbers rise

ECONOMYNEXT –  Sri Lanka recorded 10 COVID-19 deaths in the 48 hours from August 17 to 19 taking the country’s pandemic death toll to 16,640, health ministry data showed.

Sri Lanka is experiencing a slight increase in COVID-19 cases with the relaxation of public health restrictions relating to face masks and public gatherings.

Health authorities said the situation will be monitored constantly and have asked the general public to continue to follow basic hygiene measures in order to control the spread of the virus again in the community.

In August alone 2,924 new cases were recorded in Sri Lanka, with 84 deaths attributed to the disease.

So far in 2022, from January onward, health authorities have identified 81,157 patients to date.

Epidemiology unit data showed that 874 patients are currently receiving treatment, out of which 716 are receiving home based care.

The spread of the virus has increased with the use of public transport rising after an easing of a fuel crisis.

Sri Lanka is also facing difficulties in securing essential medicine supplies for the health sector due to a forex shortage.

Health officials said if the number of COVID-19 patients rise to a level the health sector cannot manage,  with the added issues of fuel and medical shortages, the health system might collapse.

“It is the responsibility of us all. There is no use trying to forcibly control people. We all have the responsibility to reduce or stop the spread of the virus before it gets out of control. We have been living with it for the past two years,” Deputy Director General of Health Services Dr Hemantha Herath said. (Colombo/Aug19/2022)

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