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Saturday April 20th, 2024

Sri Lanka inflation rises to 6.8-pct in July 21 amid MMT, currency fall

ECONOMYNEXT – Sri Lanka’s nation-wide inflation measured by a National Consumer Price Index accelerated to 6.8 percent in July 2021 from 6.1 percent in June, data from the state statistics office showed.

Sri Lanka’s National Inflation had been above the targeted 4-6 percent for three months, as the monetary authority said there were ‘supply constraints’ or ‘food inflation’ a part of a repertoire of excuses central banks that produce monetary instability usually give.

“There is no identifiable theory that says a part of the inflation is cost-push and a part is monetary,” EN’s economic columnist Bellwether says.

“US Fed Chief Arthur Burns who broke the Bretton Woods system and shattered the centuries old gold standard by ending convertibility used to go around claiming that there were two types of inflation, though the exact percentage of cost-push vs monetary inflation was not given.”

“The Fed is now insisting that the global commodity bubble it had fired with ‘stimulus’ is transitory.”

Classical economists call the practice of attributing real economy reasons for inflation, including ‘supply constraints’ and ‘wage spiral inflation’ while expanding the money supply as ‘monetary policy neglect’.

After giving various excuses why monetary policy should not be tightened, the central bank belatedly raised its overnight policy rates last week. However most of the money is printed via a one year de facto rate in the form of a ceiling Treasuries yeild which has made bond auctions dysfunctional.

A part of Sri Lanka’s inflation also comes from the Powell Bubble as imported and exported commodities rise in dollar values.

Modern central banks that cause economic chaos, also use ‘core inflation’ to remove the effects of their actions on commodities, which respond faster to stimuli than for example services.

Sri Lanka’s central bank has also printed money and the rupee has depreciation as convertibility has been lifted for most current transactions at its declared non-credible peg of 203 to the US dollar.

Analysts had warned several times that the 6-8 percent inflation target was too high to maintain the currency peg (Sri Lanka’s central bank collects reserves) as similarly high targets had caused currency crises in 2011, 2015/16 and 2018. (Colombo/Aug24/2021)

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Sri Lanka discussing giving extra land, water for Chinese oil refinery

ECONOMYNEXT – Sri Lanka is in discussions with China’s Sinopec to give extra land and assure water supplies after the company decided to expand the capacity of a planned oil refinery in Hambantota, Energy Minister Kanchana Wijesekera said.

“There are concerns on how the water supply is going to be provided for the refinery,” Minister Wijesekera told reporters Friday.

The refinery will need more land and also revise conditions in a Board of Investment agreement, he said.

Read more
Sinopec to double capacity of new refinery in Sri Lanka’s Hambantota

Recommendations and decisions from Sri Lanka’s side had already been sent and Sinopec is expected to revert back in May.

“We are hoping to sign the agreement once everyone has agreed,” Wijesekara said.

The principle agreements are expected to be signed by June, he said.

The refinery could sell up to 10 percent of its output in the domestic market.

“There is no commitment by the government to purchase anything,” Minister Wijesekera said. (Colombo/Apr19/2024)

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Sri Lanka rupee closes weaker at 302.00/50 to the US dollar

ECONOMYNEXT – Sri Lanka’s rupee closed at 302.00/50 to the US dollar in the spot forex market on Friday, down from 301.50/302.00 a day earlier, dealers said.

There was increased demand for dollars after the central bank bought 715 million dollars from forex markets. In the previous two months it was buying on average about 200 million US dollars, leaving market participants and bank in a ‘oversold’ position.

There were some official dollars sales Friday dealers said.

READ Sri Lanka rupee quoted wide to US dollar as peg inconsistencies flare up

Bond yields were broadly steady.

A bond maturing on 15.12.2026 closed at 11.30/40 percent down from 11.35/40 percent.

A bond maturing on 15.09.2027 closed at 11.95/12.05 percent up from 11.90/12.05 percent.

A bond maturing on 15.12.2028 closed stable at 12.15/25 percent.

A bond maturing on 15.09.2029 closed stable at 12.30/40 percent.

A bond maturing on 01.10.2032 closed stable at 12.40/50 percent. (Colombo/Apr19/2024)

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Sri Lanka stocks close down, banks trade down

ECONOMYNEXT – The Colombo Stock Exchange closed down on Friday, data on its site showed.

The broader All Share Index closed down 0.38 percent, or 44.80 points, at 11,753; while the S&P SL20 Index closed down 0.53 percent, or 18.46 points, at 3,456.

Turnover was at 1.4 billion. The diversified financials (Rs366mn) and banks (Rs266mn) sectors continued to see selling pressure.

“This was possibly due to uncertainty around the bond discussions,” market participants said.

With the exception of Sampath Bank Plc (up at 77.50) all other banks traded down in the day. Commercial Bank of Ceylon Plc was down at 104.50, Hatton National Bank Plc was down at 188.50, and DFCC Bank Plc was down at 77.00.

LOLC Finance Plc saw the most trades and closed up at 6.40. Another LOLC company, Browns Investments Plc, also saw high traded volumes and closed up at 5.60.

Softlogic Capital Plc was up at 7.00, and Softlogic Holdings Plc was up at 11.20. A trading suspension imposed on SHL.N0000 was lifted effective today as the company submitted the annual report for the year ended 31st March 2023.

However, shares of the Company will remain in the Watch List “due to Qualified Audit Opinion and Emphasis of matter on going concern in the Independent Auditor’s Report in the Audited Financial Statements for the year ended 31st March 2022.”

Dialog Axiata Plc, which announced its merger with Bharti Airtel Thursday, saw its share price close up at 11.90.

“There was some traction on index heavyweights,” market participants pointed out.

Top contributors to the APSI included Aitken Spence Plc (up at 134.50), Ceylon Tobacco Company Plc (up at 1,245.25, and Lion Brewery (Ceylon) Plc (up at 1,048.50).

There was a net foreign inflow of 5 million. (Colombo/Apr19/2024)

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