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Friday August 19th, 2022

Sri Lanka shortage agency likely to relax price controls on LPG, wheat flour, milk

ECONOMYNEXT – Sri Lanka’s Consumer Affairs Authority which creates shortages with price controls as the central bank prints money and triggers forex shortages, is likely to raise the controlled prices of several goods which have disappeared from shelves, report said.

A meeting of ministers with President Gotabaya Rajapaksa on Thursday night a decision was taken to remove the current price controls on LPG, wheat flour and cement and ask the price control agency to revise them.

The CAA had previously requested milk powder controlled price to be raised by 200 rupees a kilogram, a cooking gas cylinder by 550 rupee and a sack of cement by 50 rupees reports said.

However it is not clear whether these numbers are sufficient to cover the costs. The CAA usually decides on a price based on their own calculations and suppliers have previously not been able to buy the goods or find dollars.

Sri Lanka has severe foreign exchange shortages after interest rates were suppressed with printed money, creating foreign exchange shortages at a fixed price in the official market and depreciating the currency (dollar price rises like milk) in the unofficial market.

Money is printed also to pay state worker salaries who are on full salary, unlike private workers who are on pay cut amid a Coronavirus pandemic. State workers are therefore able to appropriate goods on the shelves before private citizens can.

“But as prices of goods begin to rise in response to the higher quantity of money, those who haven’t yet received the new money find the prices of the goods they buy have gone up, while their own selling prices or incomes have not risen,” explains Murray Rothbard, a US economist who played a part in taming the Fed and educating members of the public on the dangers of un-anchored monetary policy.

“In short, the early receivers of the new money in this market chain of events gain at the expense of those who receive the money toward the end of the chain, and still worse losers are the people (e.g., those on fixed incomes such as annuities, interest, or pensions) who never receive the new money at all. Monetary inflation, then, acts as a hidden “tax” by which the early receivers expropriate
(i.e., gain at the expense of) the late receivers.”

The US Fed is again running un-anchored policy printing large volumes of money to ‘create jobs’ firing what a Powell Bubble, pushing up food, oil, base metals prices.

Sri Lanka has a large public sector which is expanded every year with unemployed graudates, who cannot get a job in growth creating sectors and demand tax money to take home by engaging in fast in front of the main railway station in the capital Colombo.

Last year 53,000 graduates who have to be given 12.7 billion rupees as wages over 12 months which is about 63 million US dollars.

The money printed against Treasury bills operate like a invasion currency (military scrip) creating massive hardships for private citizens and for every one else as time goes on.

The Japanese issued occupation currency to buy food and other stuff in countries that they invaded in Asia creating food shortages and surges in rice prices. Occupation scrip known as Mickey Mouse Money in the Philippines and Banana Money in Malaya.

“Singapore’s first Finance Minister and Governor of the Monetary Authority was paid in depreciated Banana money during Japanese occupation,” says EN’s economics columnist Bellwether.

“In addition to his knowledge of classical economics having studied at LSE instead of Cambridge he had mentioned this to fellow leaders of Singapore. So he created created an currency board without a policy rate. instead of a money printing central bank as soon as Singapore separated from Malaysia.”

The British also honored previous money as soon as the Japanese were driven out.

New money created by the central bank and given to state workers or government contractors and their workers, go from the shop owner to the wholesaler, from the wholesaler to the Pettah import trader who then uses the rupees to buy foreign exchange and replace his depleted stock.

However because the new money had been created against Treasury bills bought by the central bank from failed bill auctions and not dollars bought into reserves, the central bank runs out of reserves on a net basis when convertibility is provided at the pegged rate.

Newly re-appointed central bank governor Nivard Cabraal has allowed interest rates to go up in a bid to reduce money printing and make the government borrow real savings using money already in the system.

However budget deficits are large after tax cuts, pushing up the clearing price for bonds.

Analysts and economists have called for central bank reform to curb its ability mis-used its independence and to print money to boost growth and create forex shortages and balance of payments crises in the process.

However there may be also be a possibility of prosecuting the Monetary Board for printing money to push growth considerations and violating its mandate under section 5 (a) of the Monetary Law Act without any changes to the existing Law.

Over several decades Sri Lanka’s parliament has undermined monetary stability by bringing ad hoc changes to the law including Section 88 subsections to undermine rule based monetary policy.

Fortunately the current administration did not enact a law brought by the last administration

The central bank has released 50 million US dollars to importers to clear several hundred containers stuck at port Governor Cabraal has said.

To enforce an overnight policy rate at 6.0 percent the central bank has to print money (about 12 billion rupees) after releasing the money (sterilize the intervention) preventing the credit system from adjusting to transfer of real wealth out and replacing with new paper money.

The overnight policy rate is also a price control, which is enforced with unlimited creation of paper money, leading to dollars shortages or ‘rationing of dollars’.

To stop the exchange rate from collapsing the central bank has to allow liquidity to decrease when dollars are sold, which is known as a unsterilized foreign exchange sale.

In other worlds to provide dollars for every rupee that hits the forex market (provide convertibility) at the promised exchange rate (convertibility undertaking) the monetary authority has to limit its note issue (reserve money).

If it wants to control reserve money at its discretion with a policy rate usually by pegging to an inflation index (inflation targeting) it has to suspend convertibility of the existing rupee money supply (float the rupee) and not give dollars for imports.

However it will also only work if bond auctions do not fail and Treasury does not overdraw state banks with central bank re-finance money. (Colombo/Oct08/2021)

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Sri Lanka schedules 3-hour power cuts for Aug 20, 21: regulator

ECONOMYNEXT – Sri Lanka will impose power cuts of up to three hours on Saturday August 20 and Sunday August 21, Public Utilities Commission (PUCSL) Chairman Janaka Ratnayake said.

All areas (A, B, C, D, E, F, G, H, I, J, K, L, P, Q, R, S, T, U, V and W) will have power cuts of 1 hours and 40 minutes between 10.30 am and 06.00 pm and 1 hour 20 minutes from 06.00pm to 10.00 pm.

Click here for a detailed schedule.

The state-run Ceylon Electricity Board (CEB) said supply interruption time and restoration time will vary within 30 minutes as indicated above.

Sri Lanka’s daily scheduled power cuts that were reduced to one hour in July with power generation from hydro power plants contributing more than 50 percent to the main grid reducing thermal power plant use was extended to three hours last week due to a breakdown at the Norochcholai coal power plant.

According to officials, the breakdown happened in Unit 1 of Norochcholai which will take around two weeks to repair.

The Minister of Power & Energy said Unit 2 is undergoing scheduled maintenance work while Unit 3 will continue to operate. West Coast and other fuel power pPlants will be used to manage the supply, the ministry said. (Colombo/Aug02/2022)

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Sri Lanka guidance peg edges T-bond yield edge down

ECONOMYNEXT – Sri Lanka Central Bank’s guidance peg for interbank transactions edged down on Friday (19), while yields in Treasury bonds picked up slightly and in T-bill remain unquoted in dull trade, a day after the Central Bank announced the policy rates will remain stable, dealers said.

A bond maturing on 01. 06. 2025 closed at 27.95/28.05 percent on Friday, slightly up from 27.90/28.00 percent on Thursday.

No T-bills were quoted on Friday, dealers said.

Meanwhile Sri Lanka’s central bank announced a guidance peg for interbank transactions further weakened by three cents to 361.00 rupees against the US dollar on Friday from 360.97 rupees.

Data showed that commercial banks offered dollars for telegraphic transfers between 368.00 and 370.00 for small transactions.  (Colombo/ Aug 19/2022)

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Sri Lanka records 10 new COVID-19 deaths in 48 hours as case numbers rise

ECONOMYNEXT –  Sri Lanka recorded 10 COVID-19 deaths in the 48 hours from August 17 to 19 taking the country’s pandemic death toll to 16,640, health ministry data showed.

Sri Lanka is experiencing a slight increase in COVID-19 cases with the relaxation of public health restrictions relating to face masks and public gatherings.

Health authorities said the situation will be monitored constantly and have asked the general public to continue to follow basic hygiene measures in order to control the spread of the virus again in the community.

In August alone 2,924 new cases were recorded in Sri Lanka, with 84 deaths attributed to the disease.

So far in 2022, from January onward, health authorities have identified 81,157 patients to date.

Epidemiology unit data showed that 874 patients are currently receiving treatment, out of which 716 are receiving home based care.

The spread of the virus has increased with the use of public transport rising after an easing of a fuel crisis.

Sri Lanka is also facing difficulties in securing essential medicine supplies for the health sector due to a forex shortage.

Health officials said if the number of COVID-19 patients rise to a level the health sector cannot manage,  with the added issues of fuel and medical shortages, the health system might collapse.

“It is the responsibility of us all. There is no use trying to forcibly control people. We all have the responsibility to reduce or stop the spread of the virus before it gets out of control. We have been living with it for the past two years,” Deputy Director General of Health Services Dr Hemantha Herath said. (Colombo/Aug19/2022)

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