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Tuesday June 18th, 2024

Sri Lanka sells 2-year bonds below policy rate after money printing

ECONOMYNEXT – Sri Lanka had sold 35 billion rupees of 2-year, 5- month bonds at 5.86 percent below the 6.5 percent policy rate, data from the state debt office showed, as banks were flushed with excess liquidity from unprecedented money printing and a cut in the statutory reserve ratio.

The debt office also sold 25 billion rupees of 7-year 1-month bonds at 6.97 percent after offering the same volume.

The 35 billion rupee offer for 2-year 5-months drew bids of 83 billion rupees and a 7-year bond had drawn bids of 54 billion rupees.

Sri Lanka’s bond yield had fallen sharply after the central bank printed money and also cut the statutory reserve ratio releasing more money for banks to lend or invest in bonds.

Data showed that in April private credit growth had plunged, after a spike in credit in March powered by printed money drove the rupee down.

However, bond yields of countries that did not print money including Vietnam which kept its exchange rate stable had also plunged as private credit fell with Coronavirus controls slowing down activities.

Related

Sri Lanka injects Rs459bn from Feb 2020, spends US$1.3bn in forex reserves

Sri Lanka private credit tumbles in April 2020, more money printing

Sri Lanka had injected 459 billion rupees into the money markets since February and 244 billion had been mopped up from about 1.3 billion dollars of central bank reserves spent.

Around 175 billion rupees of the liquidity came in as cuts in the statutory reserve ratio, which is the share of deposits banks must keep in the central bank to 2 percent from 5 percent.

The cuts in the SRR which while releasing money which can trigger excess demand and forex reserve losses in the short-term, also structurally lowers interest rates by reducing intermediation costs making the banking system more efficient.

About 200 billion rupees of excess liquidity remains, which could take up to another 1.1 billion dollars of reserve sale to mop up if private credit picks up. In the meantime, the money could be spent by the government via bond sales (deficit financing) in state salaries and other expenses.

The central bank has announced up to 150 billion rupees of Zimbabwe-style re-finance at a deeply subsidized rate of 4 percent which is also below the policy rate of which only 28 billion rupees had been disbursed up to the third week of June due to the lack of a credit guarantee.

Sri Lanka’s central bank has announced a credit guarantee and encouraged banks to lend their own resources.

However the slightly higher policy rate may help prevent excessive mal-investments and further foreign reserve losses, analysts say.

Sri Lanka has lost 1.3 billion dollars since the money printing bout (monetary stimulus) came in the wake of tax cuts (fiscal stimulus), attracting a one-notch downgrade of the sovereign rating to ‘B-‘ in early 2020.

Analysts had urged authorities to maintain monetary stability and reform the central bank’s domestic operations to avoid downgrades. (Colombo/June29/2020-sb)

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  1. W5Iv says:

    This is fantastic content. You’ve loaded this with helpful, informative content that any reader can comprehend. I enjoy reading articles that are so extremely well-written. 796185

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  1. W5Iv says:

    This is fantastic content. You’ve loaded this with helpful, informative content that any reader can comprehend. I enjoy reading articles that are so extremely well-written. 796185

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 exemption on one house, but did mention an exemption 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 were 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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