An Echelon Media Company
Thursday June 1st, 2023

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)

Leave a Comment

Your email address will not be published. Required fields are marked *

Leave a Comment

Leave a Comment

Cancel reply

Your email address will not be published. Required fields are marked *

Sri Lanka exports down in April, trade deficit up from March, rupee stronger

ECONOMYNEXT – Sri Lanka’s exports fell 12.6 percent from a year ago to 849 million US dollars in April 2023, amid weaker external demand, while imports were down 15.8 percent to 1,431 million Us dollars, central bank data showed.

Exports also fell 1,037 million dollars in March 2023, amid seasonal effects.

The trade deficit expanded to 583 million US dollars in April from 412 million US dollars in March 2023. Imports were at 1431 million US dollars in April from 1,450 million dollars in March.

Imports can pick as tourism, worker remittances and net inflows to government go up.

The rupee continued to appreciate.

“Exchange rate showed a notable appreciation during April 2023 with the continued improvement in liquidity in the domestic foreign exchange market, the discontinuation of the daily guidance on exchange rates,” the central bank said.

Up to April exports were down 9 percent to 3.8 billion rupees and imports were down 28 percent to 5.2 billion rupees and the trade deficit was 1.4 billion rupees.

Investment goods imports were down in April amid a contraction in credit.

“Almost all types of goods listed under the three main investment good categories, namely machinery and equipment, building material and transport equipment, recorded a decline,” the central bank said.

Continue Reading

Sri Lanka President discusses debt restructure, program progress with IMF

ECONOMYNEXT – Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

State Minister of Finance Shehan Semasinghe, Senior Advisor to the President on National Security and Chief of Presidential Staff Sagala Ratnayake was also in the meeting.

Secretary of the Ministry of Finance Mahinda Siriwardena, Central Bank Governor Nandalal Weerasinghe, Deputy Director of the International Monetary Fund Anne Marie Gulde, and Resident Representative IMF in Sri Lanka Sarwat Jahan, attended this event. (Colombo/June01/2023)

Continue Reading

Sri Lanka cuts petrol to Rs318 a litre, kerosene to Rs245

ECONOMYNEXT – Sri Lanka has cut petrol 92-Octane by 15 rupees to 318 rupees a litre and kerosene by 50 rupees to 245 rupees a litre from midnight May 31, the Ministry of Energy said.

Petrol 95 Octane will be raised by 20 rupees to 385 rupees, and Lanka Super Diesel 4 Star Euro 4 will be raised by 10 rupees to 340 rupees a litre.

Lanka Industrial Kerosene will be cut by 60 rupees a litre to 270 rupees.

Kerosene which is similar to jet fuel is usually the most expensive fuel in international markets followed by diesel and petrol is usually the cheapest.

Kerosene which is substantially cheaper than diesel is also used by buses to cut costs. (Colombo/May31/2023)

Continue Reading