Sri Lanka’s external sector displayed a mixed performance in June 2018. Even though the lowest trade deficit so far during the year in absolute terms was recorded in the month of June, the trade deficit widened significantly in comparison to June 2017 as the growth in import expenditure outpaced the increase in export earnings. Earnings from tourism increased notably in June 2018 continuing the growth momentum observed since the beginning of the year, although workers’ remittances declined during the month in comparison to June 2017.
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External Sector Performance - June 2018
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Inflation in July 2018
Headline Inflation, as measured by the change in the National Consumer Price Index (NCPI, 2013=100), which is compiled by the Department of Census and Statistics (DCS), increased to 3.4 per cent in July 2018 from 2.5 per cent in June 2018, on year-on-year basis, mainly driven by low base that prevailed in the previous year as well as the monthly increase in the prices of items in the Non-food category. The change in the NCPI measured on an annual average basis decreased from 5.3 per cent in June 2018 to 5.1 per cent in July 2018.
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Clarification on the EPF’s equity investment in Weligama Hotel Properties Limited (WHPL)
Attention of the Central Bank of Sri Lanka has been drawn to recent media reports and the corporate disclosure to the Colombo Stock Exchange (CSE) by East West Properties PLC, the parent company of Weligama Hotel Properties Limited (WHPL).
The Employees’ Provident Fund (EPF) Department received a letter from the Chairman of WHPL in June 2018 to sell its stake in WHPL to HPL Properties Group. Subsequently, the EPF Department held several discussions with WHPL in this regard. Accordingly, the Monetary Board of the Central Bank of Sri Lanka has decided to obtain a valuation of EPF’s equity stake in WHPL and the above valuation process is currently in progress.
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Clarification on Lending to an Entity (Concern) Where the Director of a Bank has an Interest
The Central Bank of Sri Lanka wishes to clarify the regulatory and supervisory procedure in relation to lending to a concern in which a director of a licensed bank (bank) has directly/indirectly an interest, consequent to the concerns raised in print and electronic media in the recent past.
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Sri Lanka Purchasing Managers’ Index - July 2018
The Manufacturing Sector PMI decreased to 57.2 index points in July 2018 from 57.6 index points observed in the previous month. The marginal slowdown observed in manufacturing activities in July was mainly driven by slowdown in employment due to the difficulties in replacing unskilled employees to account for high labour turnover especially in the Food and Beverages, and Textiles and Apparel sectors. Moreover, new orders in July 2018 slightly slowed down. However, production and stock of purchases show some improvement, especially in manufacturing of chemicals and pharmaceutical products with the expected positive outlook for the next three months. Meanwhile, lengthening of suppliers’ delivery time usually indicates that economy is booming with expanding activities in the short run.
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Regulatory Action on a Primary Dealer - Pan Asia Banking Corporation PLC
The Monetary Board of the Central Bank of Sri Lanka, acting in terms of the Regulations made under the Registered Stock and Securities Ordinance and the Local Treasury Bills Ordinance, has decided to extend the suspension of business and activities of a Primary Dealer of Pan Asia Banking Corporation PLC (PABC) for a period of six months with effect from 10.00 a.m. on 15th August 2018, in order to continue the investigations being conducted by the Central Bank of Sri Lanka.
The Central Bank wishes to emphasize that this regulatory action restricts PABC’s access to the primary auctions for government securities. It does not affect any of the other activities/services of PABC.
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The Central Bank of Sri Lanka Maintains Policy Interest Rates at Current Levels
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 02 August 2018, decided to maintain policy interest rates at their current levels. Accordingly, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) of the Central Bank will remain at 7.25 per cent and 8.50 per cent, respectively. The Board’s decision is consistent with its aim of stabilising inflation at mid-single digit levels in the medium term, thereby contributing to a high and sustainable growth trajectory of the Sri Lankan economy. In arriving at its decision, the Board carefully considered the current and expected domestic and global economic developments.
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The Standard Credit Finance Limited - Cancellation of Licence issued under the Finance Business Act No. 42 of 2011 and Certificate of Registration issued under the Finance Leasing Act No. 56 of 2000
The Standard Credit Finance Limited (TSCFL), a Licensed Finance Company licensed under the Finance Business Act No. 42 of 2011 (FBA) was facing liquidity crisis since 2008 Depositors of the company have been unable to withdraw their money over the last ten years. All efforts made to revive the company through different strategies have been failed. The continuity of current status will further detrimental to the interest of depositors and other stakeholders of the company.
Therefore, Monetary Board of the Central Bank of Sri Lanka, has decided to cancel the Licence issued to TSCFL under the FBA with effect from 25th July 2018. Accordingly, TSCFL is not permitted to engage in Finance Business under the FBA with effect from 25th July 2018.
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Inflation in June 2018
Headline Inflation, as measured by the change in the National Consumer Price Index (NCPI, 2013=100), which is compiled by the Department of Census and Statistics (DCS), increased to 2.5 per cent in June 2018 from 2.1 per cent in May 2018, on year-on-year basis, mainly driven by monthly increase in the prices of items in the Food category. The change in the NCPI measured on an annual average basis decreased from 5.7 per cent in May 2018 to 5.3 per cent in June 2018.
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External Sector Performance - May 2018
Sri Lanka’s external sector demonstrated a modest performance in May 2018. The deficit in the trade account continued to expand at a comparatively slower rate in May 2018, as export growth outpaced import growth. Tourist earnings continued to increase while workers’ remittances declined during the month. Inflows to the financial account of the balance of payments (BOP) moderated with net outflows from the government securities market and a reduction in net inflows to the Colombo Stock Exchange (CSE). The country’s level of gross official reserves at the end May 2018, stood at US dollars 8.8 billion. Meanwhile, reflecting the developments in the domestic and global foreign exchange markets, the Sri Lankan rupee depreciated by 3.3 per cent against the US dollar by end May 2018 and by 4.5 per cent so far during the year up to 20 July 2018.