Economy

Sri Lanka to get central bank governor as rupee weakens

Tuesday April 5, 2022 6:10 am

ECONOMYNEXT – Nandalal Weerasinghe, a retired central banker Deputy Governor will take over as its chief this week, a media report said as Sri Lanka reels under an unprecedented currency crisis and political turmoil.

Bloomberg Newswires reported that Weerasinghe, a former Deputy Central Bank Governor will take-over from April 07.

A monetary policy meeting where policy rates were widely expected to be raised, scheduled for Monday was postponed as Nivard Cabraal resigned with a political crisis spiralling and the cabinet resigning en masse.

Sri Lanka’s rupee and the economy has been badly hit from two years of money printing which created balance of payments deficits as outflows exceeded imports and reserves were used up to redeem new money and maintain the currency peg.

A float attempted in March to balance inflows by ending sterilized interventions failed due to a surrender required that made it a peg and pushed it down (a strong side convertibility undertaking imposed on peg which was already on its weak side), analysts have said.

The rupee which stated at 4.77 to the US dollar when the Latin America style central bank was set up fell below 300 to the US dollar in March. The central bank on Monday published an indicative spot rate of 310 rupees. Market participants said transaction are settled around 325 rupees.

Sri Lanka has to pay about 5,880 million dollars of foreign currency denominated debt in the rest of the 2022.

Weerasinghe is taking over as the monetary authority has also borrowed through central bank and interbank swaps and has over 3.0 billion US dollars of net debt and there are problems with dollar debt of banks.

Analysts have warned that Sri Lanka is facing defaults on multiple fronts as inflation has started to gallop.

India has also deferred hundreds of millions of dollars of payments due under the Asian Clearing Union due from the central bank for imports made from the country. (Colombo/Apr05/2022)

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Economy

Sri Lanka cuts policy rates 250 basis points

Thursday June 1, 2023 7:36 am

ECONOMYNEXT – Sri Lanka cuts policy rates 250 basis points lowering the rate at which liquidity is injected to markets to 14.0 percent to from 16.50 percent, saying inflation was falling faster than expected.

“The Board arrived at this decision with a view to easing monetary conditions in line with the faster than expected slowing of inflation, gradual dissipation of inflationary pressures and further anchoring of inflation expectations,” the central bank said.

“The commencing of such monetary easing is expected to provide an impetus for the economy to rebound from the historic contraction of activity witnessed in 2022, while easing pressures in the financial markets.”

“Headline inflation (year-on-year), based on the Colombo Consumer Price Index (CCPI), continued the deceleration path, faster-than-projected earlier, supported by the lagged impact of tight monetary and fiscal policies, strengthening of the Sri Lanka rupee, reduction in fuel and gas prices, normalisation of food prices and the favourable impact of the statistical base effect.

“The full passthrough of the large appreciation of the exchange rate observed recently is yet to be
reflected in the price levels, and it would quicken the disinflation process, as the prices of
imported goods are expected to decline further in the period ahead.”

Sri Lanka’s balance of payments has been surplus for several months and the central bank has allowed rates the rupee to appreciate.

Market rates however has been high amid expectations of a domestic debt re-structuring and mainly government borrowings, with private credit negative and state enterprises also cutting losses.

“With greater macroeconomic stability being achieved through corrective policy measures, particularly in terms of faster-than-expected deceleration of inflation thus far during 2023 and the benign inflation outlook and the easing of the BOP pressures, the Monetary Board of the Central Bank of Sri Lanka, upon carefully assessing the current and expected developments, decided to relax the stance of monetary policy and reduce the policy interest rates.”

Economy

Sri Lanka exports down in April, trade deficit up from March, rupee stronger

Thursday June 1, 2023 7:05 am

ECONOMYNEXT – Sri Lanka’s exports fell 12.6 percent from a year ago to 849 million US dollars in April 2023, amid weaker external demand, while imports were down 15.8 percent to 1,431 million Us dollars, central bank data showed.

Exports also fell 1,037 million dollars in March 2023, amid seasonal effects.

The trade deficit expanded to 583 million US dollars in April from 412 million US dollars in March 2023. Imports were at 1431 million US dollars in April from 1,450 million dollars in March.

Imports can pick as tourism, worker remittances and net inflows to government go up.

The rupee continued to appreciate.

“Exchange rate showed a notable appreciation during April 2023 with the continued improvement in liquidity in the domestic foreign exchange market, the discontinuation of the daily guidance on exchange rates,” the central bank said.

Up to April exports were down 9 percent to 3.8 billion rupees and imports were down 28 percent to 5.2 billion rupees and the trade deficit was 1.4 billion rupees.

Investment goods imports were down in April amid a contraction in credit.

“Almost all types of goods listed under the three main investment good categories, namely machinery and equipment, building material and transport equipment, recorded a decline,” the central bank said.

Economy

Sri Lanka President discusses debt restructure, program progress with IMF

Thursday June 1, 2023 6:14 am

ECONOMYNEXT – Sri Lanka’s President Ranil Wickremesinghe has discussed progress of International Monetary Fund program and debt restructuring during a visit of Deputy Managing Director Kenji Okamura, statement said.

“The discussion primarily focused on the progress of the IMF program between Sri Lanka and the IMF,” a statement from President’s office said.

“Attention was also paid to the on-going debt restructuring negotiations.”

State Minister of Finance Shehan Semasinghe, Senior Advisor to the President on National Security and Chief of Presidential Staff Sagala Ratnayake was also in the meeting.

Secretary of the Ministry of Finance Mahinda Siriwardena, Central Bank Governor Nandalal Weerasinghe, Deputy Director of the International Monetary Fund Anne Marie Gulde, and Resident Representative IMF in Sri Lanka Sarwat Jahan, attended this event. (Colombo/June01/2023)