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Tuesday June 18th, 2024

Sri Lanka markets being allowed to work, confidence key: Governor Cabraal

POLICY MATRIX: Through low rupee rates incentives are still given not to sell dollars and not to sell forward and borrow rupees including to hold stocks.

ECONOMYNEXT – Sri Lanka’s central bank is on a path to allow markets to work again but confidence was key to make them function well, Central Bank Governor Nivard Cabraal said as bond markets limped back from price controls, but forex market were still dysfunctional.

Progress will be somewhat slow but effective, he said.

Governor Cabraal lifted Treasury bill auction price controls which had led to a so-called ‘ramrod rate anomaly’ seen prior to and during currency crises in Sri Lanka where the yield curve flattens and rates remains rock solid (ramrod) across time as money is printed to maintain artificial rates.

Sri Lanka’s spot market is not functioning with a price control at 203 to the US dollar which is not backed up by a convertibility undertaking leading to off-market settlements, while forward cover to importers is banned.

However with low rupee yields exporters are in any case no inclined to sell forward, or even spot.

Cabraal said some markets were not functioning partly due to weak confidence.

“There are some instruments that have been stopped by the central bank,” Cabraal told EconomyNext. “Some which have not been stopped.

“What we are doing is allowing markets to move in the way that they should perform. So I think when confidence returns and all these instruments are being accessed once again normalcy will return

“We are working towards normalcy not particular instruments only. And we are confident that will occur.”

Cabraal last week met with exporters and importers. Exporters were urged not to hoard dollars and importers not to bring down excessively large stocks.

At the moment however low rupee rates discourage spot and also forward selling.

Last week controls on Treasury bill auctions, were lifted. But data showed that at least two billion rupees had been printed despite the foreign reserves falling to low levels.


Cabraal removes Sri Lanka bond auction price controls

“Already we have been in conversation with so many stakeholders I think bond markets is not divorced from the rest of the economy,” he said.

“They are part and parcel of the economy. If there is a general build-up of confidence across the board bond markets will have also confidence transmitted to them. I am targeting the entire economy together.”

“There is some good vibrations being cause and a lot of have responded favourably.

“In another week or two most of these will be different from what it was two week ago. So I am confident that markets will also respond.”

There is some demand for medium to longer term bonds above 10 percent based on recent trends.

Analysts say for the moment bond investors will be willing to buy at a rate which may take into account the possibility of a future rise in rates especially in the short end.

In the past the central bank did not have the ability to buy bonds and de-stabilize the yield curve due to a ‘bills only’ policy instituted by then-Governor AS Jayewardene and also maintained by Governor Cabraal.

Jettisoning of the policy allowed bond yields also to be manipulated, either by crippling auctions or through separate outright purchases to inject money into what was not a floating exchange rate but a regime with a foreign reserve building convertible monetary base.

Cabraal said policies have to implement taking an overall view.

“All these are inter-connected,” he said. “When we are making interventions we have to make sure that one does not affect the other adversely.”

“Naturally the progress will be somewhat slow, but effective. We will go forward but all macro-fundamentals will go together.” (Colombo/Sept26/2021)

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Sri Lanka’s Ceylon Chamber links up with Gujarat Chamber

ECONOMYNEXT – The Ceylon Chamber of Commerce has signed an agreement with the Southern Gujarat Chamber of Commerce and Industry (SGCCI) to increase trade cooperation between India and Sri Lanka.

The MOU was signed by CCC CEO Buwanekabahu Perera, SGCCI President Ramesh Vaghasia, in the presence of Dr Valsan Vethody, Consul General for Sri Lanka in Mumbai, India.

“With the signing of the MoU, … the Ceylon Chamber of Commerce and SGCCI aim to facilitate trade between the two countries via initiatives such as trade fairs and delegations, business networking events, training programmes,” the Ceylon Chamber said in a statement.

“This partnership will open doors for Sri Lankan businesses to explore opportunities in Surat’s dynamic market and enable the sharing of expertise and resources between the two regions.”

Established in 1940, SGCCI engages with over 12,000 members and indirect ties with more than 2,00,000 members via 150 associations. It promotes trade, commerce, and industry in South Gujarat.

The region’s commercial and economic centre Surat has risen to prominence as the global epicenter for diamond cutting and as India’s textile hub, and is ranked the world’s 4th fastest growing city with a GDP growth rate of 11.5%

Surat’s economic landscape is vibrant and diverse. As India’s 8th largest and Gujarat’s 2nd largest city, it boasts the highest average annual household income in the country.

The nearby Hazira Industrial Area hosts major corporations like Reliance, ESSAR, SHELL, and L&T. (Colombo/Jun18/2024)

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Sri Lanka telecommunications bill some clauses ruled unconstitutional by SC: Speaker

ECONOMYNEXT – Sri Lanka’s Supreme Court has found a number of clauses in a proposed amendment to the Telecom Telecommunications Amendment bill unconstitutional, speaker Mahinda Yapa Abeywardana said.

“Clause No 8, proposed section 9A 2 of the bill is inconsistent with Article 12 1 of the constitution, however this inconsistency shall cease if word ‘may’ will be replaced with word ‘shall’ as set out in the determination of the supreme court.”

“Clause No 9 is inconsistent with Article 12 1 of the constitution and only can be passed with special majority required under paragraph 2 of the Article 84. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.

Clause No 12, proposed section 17 10 of the bill is inconsistent with Article 12 1 of the constitution and can only be passed with special parliament majority required under Article 84 paragraph 2. However, the inconsistency shall cease if clause is amended as set out in the determination of the supreme court.”

Sections of clauses 13, 18, 20, 33 and 35 were also in violation of the constitution, and could only be passed by a special majority of parliament. (Colombo/Jun18/2024)

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Sri Lanka to exempt one house from imputed rent wealth tax: President

ECONOMYNEXT – Sri Lanka will exempt one house from a proposed wealth tax outlined in an International Monetary Fund program, President Ranil Wickremesinghe said.

About 90 percent of the people’s houses are likely to be exempt from the proposed tax, he said.

“[O]ne house will be exempt from this,” President Wickremesinghe told parliament Monday.

“It is going to have a very high threshold and I do not think the vast majority of the people in this country should even be worried about their house

“Don’t worry your house will be safe.”

The IMF program document however did not mention an exempt on one house, but did mention a threshold.

Taxing houses and thrift in general could have detrimental effects on people’s well-being housing stock and their willingness to remain in the country without migrating, critics say.

Related Sri Lanka to tax imaginary rents on houses under IMF deal

The mechanism of imputed rents was used because rates on houses was assigned to provincial councils and courts could strike it down.

Opposition legislator Harsha de Silva said the Samagi Jana Balwegaya welcomed President Wickremesinghe’s statement. (Colombo/June18/2024)

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