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Sri Lanka Purchasing Managers’ Index (Manufacturing and Services) - March 2024

Purchasing Managers’ Indices indicate expansions in Manufacturing and Services activities in March 2024.

Sri Lanka Purchasing Managers’ Index for Manufacturing (PMI – Manufacturing) recorded an index value of 62.5 in March 2024, indicating an expansion in manufacturing activities. This marks the highest PMI-Manufacturing that was recorded in three years. All the sub-indices expanded on a month-on-month basis contributing to this increase, mainly driven by the seasonal demand.

The increase in New Orders and Production was mainly attributable to the manufacture of food & beverages and textiles & apparel sectors. Most of the manufacturers, especially in food & beverage sector, were optimistic about the upcoming festive season. Moreover, Employment and Stock of Purchases increased during the month in line with the New Orders and Production. Further, a decline in price levels was also evident. Meanwhile, Suppliers' Delivery Time remained lengthened, yet at a slower rate in March.

Central Bank Issues Guidelines for the Establishment of Business Revival Units in Licensed Banks to Support Revival of Viable Businesses

The Central Bank of Sri Lanka issued broad guidelines to licensed banks on 28 March 2024, to further strengthen the functions of already established Post COVID-19 Revival Units and reformulate such units as Business Revival Units (BRUs). The enhanced scope of proposed BRUs will facilitate sustainable revival of viable businesses affected by the extraordinary macroeconomic conditions and ensure the proper handling of the increased impaired assets of licensed banks. The Central Bank sought relevant stakeholder views including the banking industry and the Chamber of Commerce, when formulating these guidelines.

The challenging macroeconomic conditions prevailed during the recent years have led to disrupting the income generating activities of businesses, adversely impacting the ability of borrowers to duly repay their loans and thereby impairing the recovery process of licensed banks. Thus, the setting up of BRUs is considered imperative to assist both performing and non-performing borrowers of licensed banks whose businesses are fundamentally viable to revive.

CCPI based headline inflation decelerated sharply in March 2024

Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100) decelerated sharply to 0.9% in March 2024 from 5.9% in February 2024. This deceleration in the headline inflation is broadly in line with the projections of the Central Bank of Sri Lanka (CBSL).

Non-Food Category recorded a deflation (Y-o-Y) of 0.5% in March 2024 compared to the inflation of 7.0% observed in February 2024. Nevertheless, food inflation (Y-o-Y) accelerated to 3.8% in March 2024 from 3.5% in February 2024. Monthly change of CCPI recorded -1.94% in March 2024 due to the price decreases of 0.66% observed in the items of Food category and decreases of 1.28% observed in Non-Food category items. Meanwhile, core inflation (Y-o-Y), which reflects the underlying inflation trends in the economy, accelerated to 3.1% in March 2024 from 2.8% in February 2024.

SL Purchasing Managers’ Index (PMI) for Construction Industry – February 2024

Sri Lanka Purchasing Managers’ Index for Construction (PMI – Construction) indicates an expansion in construction activities in February 2024, as reflected by the Total Activity Index, which recorded an index value of 57.1. Many firms attributed the growth in construction activities to the current conducive environment and the resumption of several temporarily suspended projects. 

External Sector Performance - February 2024

Both import expenditure and export earnings increased in February 2024, compared to a year ago. However, as the increase in imports surpassed that of exports, the trade deficit widened. Also, import expenditure in February declined notably compared to previous month, led by lower fuel imports. 

Services sector recorded notable net inflows in terms of earnings from tourism, sea transport, air transport, and computer and IT/BPO related services. 

Workers’ remittances continued to record improvements on year-on-year basis in February 2024 as well.

In February 2024, foreign investment to the Colombo Stock Exchange (CSE) recorded the highest monthly net inflow since February 2022, while there was a net outflow from the government securities market.

Gross Official Reserves stood at US dollars 4.5 billion by end February 2024 and the Sri Lanka rupee appreciated by 7.6 per cent against the US dollar during the year up to 28 March 2024.

The Central Bank of Sri Lanka Further Reduces Policy Interest Rates

The Monetary Policy Board of the Central Bank of Sri Lanka, at its meeting held on 25 March 2024, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 50 basis points (bps) to 8.50 per cent and 9.50 per cent, respectively. The Board arrived at this decision following a comprehensive assessment of current and expected domestic and international economic developments, to maintain inflation at the targeted level of 5 per cent over the medium term, while enabling the economy to reach its potential. In arriving at this decision, the Board took note of, among others, subdued aggregate demand conditions, the lesser-than-expected impact of the recent changes to the tax structure on inflation, favourable near-term inflation dynamics due to the recent adjustment to electricity tariffs, well-anchored inflation expectations, the absence of excessive external sector pressures and the need to continue the downward trajectory in market interest rates. The Board observed that the possible upside risks to inflation in the near term would not materially change the medium-term inflation outlook, as economic activity is projected to remain below par for an extended period. The Monetary Policy Board underscored the need for a swift and full passthrough of monetary easing measures to market interest rates, particularly lending rates, by the financial institutions, thereby accelerating the normalisation of market interest rates in the period ahead.