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Thursday December 1st, 2022

Sri Lanka raised fuel prices to strengthen economy, rupee: President’s office

ECONOMYNEXT – Sri Lanka has raised fuel prices to strengthen the economy, the rupee and the banking system which has loaned over 652 billion rupees to the Ceylon Petroleum Corporation, the President’s office said.

The administration has come under fire for the price hike as an election promise was given that prices would be maintained with a fuel price stabilization fund, through which revenue was to have been collected with the high prices maintained when oil prices collapsed last year.

“..[T]hese price increases are only one key factor in a common strategy that strengthens the local economy,” a statement from the President’s office said.

“It aims to strengthen the country’s banking system and maintain low interest rates, reduce foreign exchange spending and strengthen the exchange rate.”

In a dramatic move Secretary of President Gotabaya Rajapaksa’s Sri Lanka Podujana Party called for the resignation of Petroleum Minister Udaya Gammanpila after the fuel price hike.

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However the statement said a cost of living committee chaired by President Rajapaksa along with Prime Minister Mahinda Rajapaksa had examined the reasons for the price hike.

Crude oil prices had risen to 70 dollar a barrel, from 45 dollars in 2020, when the oil import bill was 2,325 million dollars, down from 3,677 million in 2020.

In 2020, the oil bill was likely to be 4000 billion US dollars, the statement said.

The Ceylon Petroleum Corporation was also losing money and had loans of 652 billion due to the Bank of Ceylon and People’s Bank.

“As the Ceylon Electricity Board (CEB) has also to repay nearly Rs. 85 billion in loans to the two banks, the Treasury has issued bonds on loans given by the state banks and it has to pay a higher interest on the loans as well,” President’s office said.

Sri Lanka has faced severe forex shortages in 2020 with record money printing.

Analysts have called for laws to restrain Sri Lanka’s central bank’s ability to inject money, so that monetary stability would be maintained, trade could take place and the economy allowed to grow.

The money printing pegged central bank was set up by a US ‘money doctor’ in 1950 in the style of Argentina’s central bank.

Similar pegged central banks set up by the Latin America unit of the Federal Reserve with cookie-cutter monetary laws in South and Central America, the Middle East and Asia have ended up in import substitution and sovereign default with some degenerating into dictatorships, critics have said.

In the absence of central bank money printing, the money available to spend domestically or imports will be limited to inflows.

Sri Lanka had free trade, and a fixed exchange rate before 1950 when a currency board without money printing powers like Singapore and Hong Kong was in operation.

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Sri Lanka’s inflation eases to 61-pct in November

ECONOMYNEXT – Sri Lanka’s 12-month inflation in the capital Colombo fell to 61 percent in November 2022 from 66 percent in October as price stabilized after interest rates were allowed to go up and the exchange rate was pegged around 360 to the US dollar.

The widely watched Colombo Consumer Price Index fell absolutely 0.5 percent to 242.6 points in November after falling .04 percent in the October.

Food prices fell 1.5 percent after falling 2.0 percent a month earlier. The sub-index containing gas fell 0.5r percent and transport fell 3.6 percent.

But some services continued to go up, as relative prices adjusted to the steep fall in the currency after two years of money printing to suppress rates.

Health costs went up 5.7 percent. Furnishing and routine maintenance rose 0.4 percent.

Sri Lanka’s central bank hiked policy rates to 15.5 percent in April and pulled back on longer term money printing, allowing market rates to go to around 30 percent.

The exchange rater is pegged around 363 rupees with a surrender rule where banks are forced to sell dollars to the central bank for new liquidity.

The ongoing currency and inflation crisis is the worst in the history of the central bank.

Sri Lanka’s Latin America style central bank was set up in 1950 giving powers to the country’s macro-economists the power to mis-target rates, create currency crisis and high inflation. (Colombo/Nov30/2022)

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Sri Lanka shares close at one-month high

ECONOMYNEXT – Sri Lanka shares closed at one month high on Wednesday gaining for the fourth session on news that government is in talks with ADB and World Bank to get a 1.9 billion dollar loan facility, brokers said.

The main All Share Price Index (ASPI) closed 3.3 percent or 276.02 points higher at 8,651.23, highest index gain in since November 01.

“Investor participation improved on the back of confirmed talks with multilateral and bilateral lenders including world banks and ADB for USD 1.9Bn after IMF board level agreement is reached,” First Capital Market Research said in it’s daily note.

Former Central Bank Governor Indrajit Coomaraswamy said in a forum on Monday that the government is in discussion with ADB and World Bank to get loans of 1.9 billion US dollars after a reform program with International Monetary Fund is approved

A policy loan now being discussed with the World Bank may bring around 700 million US dollars, Coomaraswamy told a business forum organized by CT CLSA Securities, a Colombo-based brokerage.

The Asian Development Bank may also give around 1.2 billion US dollars most of which will be budget support, he said.

The market witnessed a turnover of 3.3 billion rupees, higher than this year’s daily average turnover of 2.9 billion rupees. This is the highest turnover generated since October 04.

In the last few sessions market gained after Central bank governor said market rates should eventually ease despite the fears of a domestic debt restructuring as inflation falls, increased liquidity in dollar markets, and the inter-bank liquidity improves.

In the past sessions, the index continued to fall on the speculation of a local debt restructuring although no proper decision has been taken so far.

The market saw a foreign inflow of 39 million rupees. The total net foreign inflow stood at 18.33 billion rupees so far for this year.

The more liquid index S&P SL20 closed 3.4 percent or 89.78 points higher at 2,730.08.

The ASPI has fallen 0.5 percent in November after losing 13.4 percent in October.

It has lost 29.2 percent year-to-date after being one of the world’s best stock markets with an 80 percent return last year when large volumes of money were printed.

Sampath Bank pushed the index up to close at 10.9 percent to 36.6 rupees.

Other top gainers were Browns Investment gained 15.4 percent to close at 7.5 rupees and LOLC gained 9.4 percent to close at 411.3 rupees.(Colombo/Nov30/2022)

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Sri Lanka bonds, T-bills ease, overall market dull

ECONOMYNEXT – Sri Lanka’s treasury bonds eased and T-bill yields fell on the speculation on talks with ADB and World Bank to obtain financial aid but the over all market was dull on Wednesday while the Central Bank’s guidance peg remained unchanged, dealers said.

“During the day, secondary market witnessed some buying interest on the back of speculations on yields easing while talks about financial aid from ADB and World Bank further strengthened interest,” First Capital Market Research said in it’s daily note.

A bond maturing on 01.05.2024 closed at 32.00/60 percent on Wednesday, down from 32.30/90 percent on Tuesday.

A bond maturing on 07.07.2025 bond closed at 30.80/31.30 percent up from 30.30/31.25 percent on Tuesday.

A bond maturing on 15.05.2026 closed at 31.00/30 percent down from 31.10/31.30 percent on Tuesday.

The three-month T-bills closed at 32.30/33.25 percent, down from 32.60/33.00 percent.

The Central Bank’s guidance peg for interbank transactions remained unchanged at 363.19 rupees against the US dollar.

Commercial banks offered dollars for telegraphic transfers between 371.79 and 372.10 for small transactions, data showed.

Buying rates are between 361.79 – 362.00 rupees. (Colombo/Nov 30/2022)

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