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Wednesday September 27th, 2023

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 rupee opens at 323.50/324.10 to the US dollar, bond yields stable

ECONOMYNEXT – Sri Lanka’s rupee opened at 323.50/324.10 to the US dollar on Wednesday, after closing on Tuesday at 323.70/324.20 to the US dollar, dealers said.

A bond maturing on 01.08.2026 was quoted at 15.50/70 percent on Wednesday up from Tuesday’s close at 15.45/65 percent.

A bond maturing on 01.05.2028 was quoted at 14.50/55 percent from closing at Tuesday at 14.30/55 percent. (Colombo/Sep27/2023)

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Sinopec to go up to 200 Sri Lanka pumping stations, more possible: Minister

ECONOMYNEXT- China’s Sinopec which has been assigned 150 fuel retail outlets in sri Lanka which were operated by Ceylon Petroleum Corporation, has been given the nod to set up another 50 stations, Energy Minister Kanchana Wijesekera has said.

Out of 150 stations, Sinopec has already signed up 145, Minister Wijesekera had said at a dealer convention of the new company.

‘Also we have given them the opportunity to start 50 brand new stations, in locations that may fit the requirements that exists,” Minister Wijesekera said in comments broadcast by Sri Lanka’s Derana Television.

“But it is not necessary to be restricted to 200 fuel stations. If there are any requests made by you we will be open to consideration for agreements with dealers and distributors.”

Minister Wijesekera attended the dealer convention where China’s ambassador to Colombo Qi Zhenhong was also present.

Sinopec was supposed to enter Sri Lanka in 2003 under current President Ranil Wickremesinghe who was then Prime Minister. At the time India’s IOC entered Sri Lanka.

“Under the leadership of the then prime minister Ranil Wickremesinghe, two companies asked to take part in the retail operations,” Minister Wijesekera said.

“Unfortunately due to the change of government in 2004 the companies could not take part, and due to the political changes and policy changes.

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Sri Lanka making new laws for Colombo financial zone: President

ECONOMYNEXT – Sri Lanka is drawing up a new law for Colombo Financial Zone at the Port City and also an economic commission replace the Board of Investment, President Ranil Wickremesinghe ha said.

Sri Lanka wanted to position itself as a central player in the region providing services including legal and dispute resolution. Several new laws were in the cards.

“One is the new legislation which will replace the port city to make it a Colombo financial zone with jurisdiction for offshore activity,” President Wickremesinghe was quoted as saying at a symposium on alternate dispute resolution.

“The new law has been drafted. And we will see the light of day before the end of the year. Secondly, the BOI will be replaced with the Economic Commission. Which is also looking at the resolution of disputes.”

Sri Lanka has set up an Alternate Dispute Resolution Centre in 2018.

Sri Lanka was looking at Singapore as an example and should strive to match or surpass the country except for costs where it should be a competitive advantage, President had said.

There was a void in the region Sri Lanka can fill.

“This is the key lesson to be derived. Furthermore, it is essential for all lawyers and individuals involved in legal services to broaden their perspectives and explore opportunities beyond their current scope,” he said.

Singapore however has monetary stability and has rejected printing money for growth. Sri Lanka on the other runs from one currency crisis to another by cutting rates with printed money for growth (targeting so-called potential output).

Sri Lanka has in a new law legalized printing money for growth in a new monetary law, the very strategy that drove the country into series of currency crises and eventual default, critics have warned.

The Port City however is a dollarized zone, which will be free of ‘monetary policy’ for growth. (Colombo/Sept27/2023)

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