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Sri Lanka vehicle registrations hit new high in July 2015 amid cheap credit

ECONOMYNEXT – Sri Lanka’s vehicle registrations hit a new high of 61,953 units in July 2015, up 85 percent from a year earlier, with cars up 85 percent, three wheelers up 73 percent and motor cycles up 68 percent, an analysis of vehicle registry data showed, amid low interest rates.

Car registrations rose to 9,666 units in July 2015, up from 2,555 in 2015 with small car sales rising 5,393 units from 367 units a year earlier, following a tax cut in January, an analysis of vehicle registry data by J B Securities, a Colombo-based equity brokerage showed.

Vehicles sales had already picked up to 4,311 units in December from 2,419 in November amid a recovery in bank credit when the tax cut was made.

Registrations of imported used cars also rose 3,950 units in July from 3,072 units in January led by hybrids despite a tax hike by the new administration.

Hybrid registrations dropped to 4,069 units in July from 4,320 in January.

Though the Suzuki Alto is the country’s best-selling car, observers say they are not very visible on the roads of Colombo, indicating that owner are relatively less well-off and are keeping them home for weekend use.

Colombo’s traffic jams are however are packed with hybrids, which are used by relatively well-off people including executives with vehicle and petrol allowances.

Hybrids have also low running costs, making them cheaper to run, encouraging their use, compared to conventional cars like the Maruti used by the less affluent some of who are first time users.

A hybrid family car and a Maruti Alto, which takes less space on the road, does about 20 kilometres a litre.

Three wheeler registration rose to 12,218 units in July up from 7,047 last year and up from 8,248 in January. Most three wheeler are bought on credit.





"In almost every category when one compares the 3 months Feb to April and May to July the level of financing is increasing from an already high level," the JB Securities said in a note clients.

"The vehicle financing industry is estimated to have a monthly turnover of around LKR 27 billion – this figure includes second hand cars."

Sri Lanka now has historically low interest rates which discourages savings and promotes consumption, not only of cars but of all goods and services and discourages savings.

Economic analysts have pointed out that the Central Bank has released hundreds of billions of excess liquidity firing credit and imports, and preventing a market-clearing interest rate from becoming established.

In July and August outright purchases of Treasury bills have been made, injecting further demand into the economy, pressuring a soft-peg with the US dollar.

Global commodity prices however have been falling, which analysts say gives space for depreciation without causing too much domestic inflation. However if excess liquidity injections persists or is injected the rupee would be under pressure at the new rate.

The state has also borrowed heavily from domestic markets and used the money to give subsidies and salary increments, firing credit pressure further.

JB Securities said a 10,000 rupee salary hike is making it easier for families of state workers to buy motor bikes and three wheelers which are also increasingly being used as a personal transport vehicle rather than just as taxis.

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