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Thursday March 23rd, 2023

Sri Lanka money printing reversed in Sept 2022

ECONOMYNEXT- Sri Lanka’s central bank credit (printed money) was a negative 8.7 billion rupees in September 2022 and private sector was also de-leveraging for the fourth straight month, official data shows.

Net Central Bank credit contracted 8.7 billion rupees to 3,302 billion rupees in September, down from 47.2 billion a month earlier.

Credit to government from the banking system was 53.3 billion rupees down from 163.7 billion rupees a month earlier.

Sri Lanka’s central bank has purchased some government securities from auctions outright in recent weeks but with high rates and private sector de-leveraging the money is not moving into the broader economy.

Private credit contracted by 37.3 billion rupees to 7,576.9 billion rupees in September, the fourth straight month of de-leveraging. Private credit contracte 58 billion rupees a month earlier. In June and July private credit contracted 40 billion rupees.

As a result money injected outright into the banking system, usually triggers a fall in overnight injections and not new credit which hit the balance of payments as import demand.


Sri Lanka key current inflows exceed imports for fourth month in Sept

Sri Lanka’s central bank allowed market interest rates to move up with credit demand from around April 2022 to help the worst currency crisis created in the history of agency which was set up in 1950 in the style of a Latin America style intermediate regime with extensive sterilization powers in both directions.

A sterilizing central bank will usually print money to keep interest rates down, purchase maturing Treasury bills from past deficits injecting capital, and blame the budget deficit for its policy rate.

It will also buy Treasury securities from banks after intervening to maintain the peg, injecting what 19 century classical economists called ‘fictitious capital’ into the banking system to extend a credit cycle, build up imbalances and worsen a currency crisis by boosting bank credit without deposits.

Up to June the central bank also got Asian Clearing Union dollars from India to intervene and print money.

Latin America style central banks were set up especially to extend a credit cycle and resist a slowdown from the tightening of the anchor currency (the US Fed or the Gold area generally) by post 1931 macro-economists, creating unusually intense balance of payments crises. Such tightening is automatic in hard pegs.

A central bank is the only agency which can create high inflation or balance of payments deficits by suppressing rates through its policy rate and it is also the agency which can end them.

Sri Lanka in April allowed rates to go up to reduce credit, hiked taxes to reduce credit to government and also hiked utility rates to reduce credit to state enterprises.

State enterprise credit grew 3.2 billion rupees in September after falling 54 billion rupees in August.

Sri Lanka got into serial currency crises from 2015 by injecting liquidity into the banking system in the course of operating a ‘data driven’ flexible inflation targeting regime, a type of soft-peg with unusually aggressive open market operations to target an output gap (stimulus).

The regime has an inflation target as high as 6.0 percent, about twice the rate of other central bank allowing interest rates to be mi-targeted for a longer period. Policy errors are then compensated by currency collapses called a ‘flexible exchange rate’. (Colombo/Nov07/2022)

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Sri Lanka establishes committee to investigate aircraft incidents

An aircraft lands at the Jaffna International Airport, which was opened in October 2019 and promises to push the tourism frontiers in Jaffna.

ECONOMYNEXT: Sri Lanka’s has established an expert committee under the state-run Civil Aviation Authority to investigate aircraft accidents and to implement precautionary methods in the Sri Lankan airspace, an Official said.

“Even if it is only one flight, there is a chance an accident may occur,” Civil Aviation Authority of Sri Lanka, Director General, P. A. Jayakantha said.

“This particular committee is there to investigate aircraft accidents and act as a mechanism to take over if something goes wrong”.

Sri Lanka has encountered around 2,700 minor aircraft accidents and incidents mostly on the ground in the 19 years through 2021, the CAA annual reports showed.

The new committee will analyze the past accidents and take precautionary measures while also conducting investigations and provide independent reports in the future, Jayakantha said.

The team is provided with required training and qualifications by the CAA along with an International organization, free of charge.

“Internationally also it is a requirement to have a team to investigate the aircraft accidents,” Jayakantha added.

“For a long time we have not fulfilled this requirement and that is why we established this team with the cabinet approval. Moreover, recently, Sri Lanka’s two aircrafts, one training aircraft and a commercial aircraft met an accident”

The committee will be on active duty, until the Accident Investigation Act is passed and a proper Aircraft Accident and Incident Investigation Bureau is established. (Colombo/ Mar23/2023)

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Sri Lanka bond yields steady, Rupee 319/325 at close

ECONOMYNEXT – Sri Lanka’s treasury bond yields closed steady on Thursday while rupee closed weaker, dealers said.

A 01.07.2025 bond closed at 30.60/31.00 percent on Tuesday, down from 30.25/75 percent on Wednesday.

A 15.09.2027 bond closed at 27.80/28.10 percent, steady from 27.90/28.00 percent from Wednesday.

Sri Lanka rupee closed at 319/325 against the US dollar depreciating from 318/320 from a day earlier. (Colombo/ March23/2023)

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Sri Lanka shares dive to two-week low on local debt restructuring fears

ECONOMYNEXT – The Sri Lanka market fell for a fourth session to a two-week low on Thursday, led by financials, as worries over domestic debt restructuring continued after the IMF loan was approved earlier this week resulting in investors adopting a wait-and-see approach until further clarity was provided, analysts said.

The main All Share Price Index (ASPI) closed down 1.38 percent or 131.07 points to 9,395.98, lowest since March 02.

Analysts said, majority of the banks have been on slower investment trends on fears of domestic debt restructuring after the IMF approval and waiting for more clarity on the local debt restructuring.

“The market is on muted sentiments despite the IMF loan being approved and is going through a period of consolidation,” Ranjan Ranatunga of First Capital Holdings said.

The market saw a net foreign outflow of 298 million rupees and the total offshore inflows recorded so far in 2023 to 3.3 billion rupees.

The most liquid index, S&P SL20, closed 1.64 percent, or 45.33 points, down at 2,722.94.

The market saw a turnover of 3.4 billion rupees on Thursday, above this year’s daily average of 1.8 billion rupees.

This is the highest turnover generated since March 08, which is when the market was driven off of positive sentiments from International Monetary Fund deal hope after Chinese assurances.

Top contributors to revenue was Agalawatte Plantations, on off board transactions of a stake change, contributing revenue of 1.6 billion rupees, Ranatunga said.

Top contributors to revenue industry wise was Food and Beverage and Telecommunications.

Sri Lanka Telecom has been seeing positive uptrends as the Secretary to the Treasury has informed the Board of Directors of Sri Lanka Telecom PLC (SLT) and Lanka Hospitals PLC that the Cabinet of Ministers has granted approval in principle for the divestment of the stakes held by the Treasury Secretary in the two companies.

Top losers were Sampath Bank, Hatton National Bank and Commercial Bank.

Sri Lanka is looking at options to re-structure domestic debt, or local law local currency debt (LLLC), without harming the banking sector and announce them the International Monetary Fund said in a report.

Banks have been witnessing profit taking and selling pressures after continuous uptrends prior to the IMF loan had been approved.

Analysts said, selling pressures is expected to ease as the IMF hopes to reduce inflationary pressures which will in turn lead to reductions in interest rates. (Colombo/Mar23/2023)

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