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Saturday April 20th, 2024

Sri Lanka policy to target growth with inflation ‘well-behaved’: CB Governor

ECONOMYNEXT – Sri Lanka will focus policy on boosting growth with inflation ‘well-behaved’ Central Bank Governor W D Lakshman said, after keeping policy rates unchanged in November 2020.

“Given well-behaved inflation, economic growth continues to be the key concern that needs to be addressed urgently,” Governor Lakshman told reporters in an online media briefing.

“The ongoing and expected monetary and fiscal support will help the recovery.”

Sri Lanka’s 12-month inflation measured by the Colombo Consumer Price Index was 4 percent in October, unchanged from a month earlier and nation-wide inflation was 5.5 percent, down from 6.4 percent in September.

Sri Lanka’s economic growth is expected to be a negative 1.7 percent in 2020, after lockdowns in March followed by a strong recovery in the third quarter. But the Coronavirus flared again in October.

Governor Lakshman said falling deposit rates were a concern, but rates would be low until growth became ‘robust’.

“The (Monetary) Board’s consideration was that promotion of investments for the promotion of growth was very important.

“I am not saying it is more important than the deposit rates, but once growth picks up and then growth becomes robust over a period of time, then the consumers problems ought to be sorted out over time.”

Sri Lanka has a history of delaying rate rises – in April 2018 rates were cut and enforced with liquidity injections as credit picked up – triggering currency crises, followed by consumption and output collapses and credit downgrades.

The Central Bank’s Director of Economic Research Chandranath Amarasekera said the third quarter hit would be smaller, given that only parts of the country is in lockdown.

Sri Lanka is following a discretionary inflation targeting framework called ‘flexible’ inflation targeting coupled with a ‘flexible’ exchange rate.

In March the rupee was allowed to fall steeply towards 200 to the US dollar after ‘helicopter drops’ of liquidity injections and spike in credit, triggering a downgrade and import controls.

Private credit started to collapse from April and the rupee stabilized.

The rupee had been pegged around 185 to the US dollar with the central bank largely on the buying side (strong side convertibility), amid weak credit since then, though private credit started to pick up in September and October.

“In the absence of disruptive outflows the exchange rate was well-behaved except for some volatility before the budget was announced,” Governor Lakshman said.

“The speculation driven volatility had been addressed and the exchange rate has stabilized thereafter.”

Sri Lanka’s external current account and the trade deficit had fallen in recent months, and worker remittances had picked up he said.

A trade or current account deficit is a result of a savings investment gap, and weak credit will reduce investments and weak consumption will drive savings, making imports and economic growth fall.

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The central bank had bought about 300 million dollars in 2020. Sri Lanka is also under import controls.
However a directed credit drive will begin, the central bank said. (Colombo/Nov20/2020)

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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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