The year 2017 was challenging. We have seen economy-wide effects due to inclement weather conditions. The drought and floods disturbed agriculture activities and agro based industrial activities. Spillover effects of these adverse weather conditions impacted the other sectors of the economy as well. As a result, economic growth is expected to be subdued and lower than we projected at the beginning of the year. The tight monetary policy stance of the Central Bank as well as the relatively tight fiscal policy stance of the government, which were adopted with the aim of regaining macroeconomic stability, partly affected public and private investment spending that also contributed to low economic growth.
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Road Map 2018 - Monetary and Financial Sector Policies for 2018 and Beyond
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Regulatory action taken by the Central Bank of Sri Lanka on ETI Finance Ltd and Swarnamahal Financial Services PLC
The Monetary Board of the Central Bank of Sri Lanka at its meeting held on 01.01.2018, having considered the weak financial performances of the ETI Finance Ltd. (ETIF) and Swarnamahal Financial Services PLC (SFSP) with a view to safeguard the interests of the depositors and other creditors of the two companies, and to ensure safety and soundness of the financial system, decided to take the following regulatory actions, as a temporary measure, under the provisions of the Finance Business Act No. 42 of 2011, with immediate effect.
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Willful Mutilation, Alteration and Defacement of Sri Lanka Currency Notes
Central Bank of Sri Lanka (CBSL) in considering the immense requests from the general public and the difficulties that the general public is facing in exchanging willfully defaced currency notes at Licensed Commercial Banks (LCBs), has decided to extend the time period for such exchange of currency notes at LCBs up to 31 March 2018.
Mutilation, alteration or defacement of currency notes is an offence under the Monetary Law Act (MLA) No. 58 of 1949, and is punishable by imprisonment or fine or both. Under the Regulation E of MLA, no claim in respect of the willfully mutilated or altered notes shall be entertained and such notes shall be retained by the CBSL.
The holder of these currency notes will have to suffer the loss of face value of such notes effective from 1 April 2018.
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External Sector Performance - October 2017
The external sector exhibited a significant improvement in October 2017, with a notable decline in the trade deficit and continued inflows to the financial account of the Balance of Payment (BOP). Higher export earnings, which recorded a double digit growth for the fourth consecutive month, and a deceleration in import expenditure resulted in a significant year-on-year decline in the trade deficit in October. However, earnings from tourism increased moderately, while workers’ remittances further declined, owing to adverse economic and geopolitical conditions prevailing in the Middle Eastern region. Inflows to the financial account of the BOP continued during the month amidst increased foreign investments in the Colombo Stock Exchange (CSE) and the government securities market.
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Monetary Policy Review - No. 8 of 2017
Considering recent macroeconomic developments, the Monetary Board, at its meeting held on 27 December 2017, was of the view that the current monetary policy stance is appropriate and decided to maintain the policy interest rates of the Central Bank of Sri Lanka at their present levels. However, the Central Bank will continue to cautiously monitor the developments in the economy and take necessary policy actions, if warranted.
The key sectoral developments considered in arriving at the decision by the Monetary Board are discussed below.
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Proceeds from China Merchant Port Holdings Co. Ltd Received on Account of Handing Over of Operations of Hambantota Port
Subsequent to the agreement signed between Sri Lanka Ports Authority and the China Merchant Port Holdings Co. Ltd., US $ 292.1 mn has been credited to the US Dollar account of Government of Sri Lanka maintained at the Central Bank of Sri Lanka.
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Inflation in November 2017
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), decreased to 8.4 per cent in November 2017 from 8.8 per cent in October 2017, on year-on-year basis.
The change in the NCPI measured on an annual average basis increased from 7.1 per cent in October 2017 to 7.5 per cent in November 2017.
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SL Purchasing Managers’ Index Survey - November 2017
The Manufacturing Sector PMI recorded 58.8 in November which is an increase of 4.0 index points compared to October 2017. This indicates that the Manufacturing activities expanded at a higher pace in November compared to October 2017. This was mainly driven by the New Orders and Production sub-indices owing to the increase in manufacturing of food, beverages and tobacco related activities in line with the seasonal demand. Further, Employment and Stock of Purchases sub-indices also expanded at a higher pace during the month compared to October 2017. Meanwhile, the Suppliers’ Delivery Time sub-index lengthened, albeit at a slower rate, compared to previous month. Overall, all the sub-indices of PMI recorded values above the neutral 50.0 threshold signalling an overall expansion in November 2017.
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Financial Intelligence Unit of Sri Lanka Entered into a Memorandum of Understanding with Sri Lanka Police
In terms of the provisions of the Financial Transactions Reporting Act, No. 6 of 2006 (FTRA), the Financial Intelligence Unit (FIU) of Sri Lanka entered into a Memorandum of Understanding (MOU) with Sri Lanka Police on December 13, 2017 at the Central Bank of Sri Lanka to share information/intelligence in order to facilitate investigations and prosecutions on money laundering, terrorist financing and other related offences. -
Ban on Willfully Mutiled, Alterated and Defaced Sri Lankan Currency Notes
The Central Bank of Sri Lanka (CBSL) has drawn attention of the general public for implementation of its Clean Note Policy and regulation on the willfully mutilation, alteration or defacement of Sri Lanka currency notes. The Clean Note Policy has been introduced by CBSL aiming at maintaining the quality standards of the currency notes and thereby helping to distinguish between genuine notes and counterfeits. It is also expected through this policy to enhance image of the country and promote the efficiency of processing currency notes.