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Monday April 15th, 2024

Sri Lanka has scope to cut rates: Cabraal

STAGFLATION: Sri Lanka’s growth usually falls and inflation picks up after a currency collapse.

ECONOMYNET – Sri Lanka has scope to cut rates, Senior Economic Advisor to the Finance Minister Nivard Cabraal said after the government cut taxes to boost growth.

“In my view there is scope for the central bank to cut rates,” Cabraal told foreign correspondents in Colombo.

“I feel the central bank will look at it in a way that everything gels together. I feel that at some stage that there has to be congruence of all these policies, so that we get back to a growth agenda.

“Sri Lanka having an eye on the growth agenda and still keeping an eye on inflation to make sure it does not get out of hand.”

Sri Lanka’s last government hiked taxes under a so-called ‘revenue based fiscal consolidation’ strategy advocated by the International Monetary Fund, which indicated that keeping deficits down by cutting state spending was somehow inappropriate, allowing them to boost state salaries and subsidies.

The new administration said state spending was unproductive, and wanted to try and squeeze spending for a time.

Newly appointed central bank Governor W D Lakshman is to announce his first monetary policy decision on December 27.

Cabraal said current interest rates were too high compared to inflation.

Sri Lanka previous central bank Governor Indrajit Coomaraswamy also said that Deputy Governor Nandalal Weerasinghe had pointed out that real interest rates were too high and slammed price controls on bank lending, going into unprecedented state control.

Analysts however have warned that given past trends, while inflation may be muted immediately after a currency collapse, the altered price structure in the island will begin to reflect as soon as economic activity picks and demand comes back.

Interest rates in any case cannot be compared to historical inflation but to future inflation.

Governor Coomaraswamy however has said that after spiking to 6 percent inflation will fall in 2020.

Cabraal said investor interest is picking up and current outflows in capital markets will reverse as confidence grew helping the exchange rate and growth.

Analysts have however blamed monetary instability involving liquidity injections to enforce rate cuts and currency collapses for high nominal rates.

High nominal interest rates have been seen in all countries including the US and UK or even China until a consistent non-conflicting monetary policy of either a consistent peg or floating rate is adopted analysts have pointed out.

Collapses of soft-pegs – called a flexible exchange rate in Sri Lanka – are usually followed by periods of stagflation. (Colombo/Dec25/2019)

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Sri Lanka to discuss two contentious points with bondholders: report

ECONOMYNEXT – Sri Lanka and sovereign bondholders are to discuss two matters in the near future which the two sides failed to reach agreement at March talks in London, a media report quoting a top aide to President Wickremesinghe as saying.

Sri Lanka and bondholders had discussed four matters on restructuring international sovereign bonds in late March and agreement had been reached on two, President’s Chief of Staff Sagala Ratnayake was quoted as saying on state-run ITN television.

A restructuring proposal by bondholders was not in line with IMF requirements, and Sri Lanka had sent a counter proposal, he said.

The matters will be discussed at round of talks in the near future.

Sri Lanka was optimistic of reaching an agreement with the bondholders before June, officials have said.

According to matters already in the public domain, sovereign bond holders are keen to get a bond tied to dollar gross domestic product, as they feel IMF growth projections are too low.

In past re-structuring so-called value recovery instruments, a type of warrant, gave their owners extra payments if a country did better than expected and were tied to items like oil prices.

Bondholders had initially proposed bond which would have a lower hair cut initially, and it will have additional hair cuts if growth is low (about 3.1 percent) as projected in an IMF debt sustainability analysis. (Colombo/Apr15/2024)

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BIMSTEC Secretary General visits Sri Lanka, discusses regional cooperation

ECONOMYNEXT – The Secretary General of the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), discussed measures to enhance regional cooperation, during his visit to the island last week.

Ambassador Indra Mani Pandey, Secretary General of BIMSTEC visited Sri Lanka from 07 – 12 April 2024, following his assumption of office as Secretary General of BIMSTEC in January this year.

The Secretary General “met with senior officials of relevant Ministries/Agencies to discuss measures to enhance regional cooperation under various BIMSTEC initiatives,” the Foreign Ministry said in a statement.

Several BIMSTEC countries have bilateral trade agreements, such as Sri Lanka and India, Thailand and Myanmar, Sri Lanka and Thailand, but no collective regional agreement to enable intra-regional leverage.

During the visit, Secretary General Pandey held discussions with Ministry of Foreign Affairs officials and paid courtesy calls on the President and the Minister of Foreign Affairs.

Secretary General Pandey participated at an event on “Regional Cooperation through BIMSTEC” organized by the Lakshman Kadirgamar Institute (LKI) on 9 April. (Colombo/April15/2024)

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Sri Lanka rupee closes weaker at 299.00/10 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 299.00/10 to the US dollar in the spot forex market on Monday, from 298.50/55 on Wednesday, dealers said, while bond yields were broadly steady.

A bond maturing on 15.12.2026 closed stable at 11.30/35 percent.

A bond maturing on 15.09.2027 closed stable at 11.90/12.00 percent.

A bond maturing on 15.12.2028 closed at 12.10/20 percent up from 12.10/15 percent.

A bond maturing on 15.09.2029 closed stable at 12.20/40 percent. (Colombo/Apr15/2024)

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