The Manufacturing Sector PMI recorded 59.0 in September which is an increase of 4.6 index points compared to August 2017. This indicates that the Manufacturing activties continued to expand in September 2017 at a higher rate compared to August 2017. This expansion was mainly driven by the increase in the Employment sub-index which recovered from the contraction observed in the previous month with the recruitment of new employees. The production and new orders sub-indices expanded at higher rates in September. The Stock of purchases sub-index increased at a slower rate due to the excess stocks level observed in the previous month. Suppliers’ Delivery Time lengthened, albeit at a slower rate compared to previous month.

Sri Lanka’s external sector continued to improve with increased exports and inflows to the financial account. However, the trade deficit widened in July 2017 compared to the corresponding month of 2016 due to higher import expenditure amid the increase in export earnings. Tourist earnings declined marginally in July while workers’ remittances increased, reversing its declining trend observed in the last four months. Inflows to the financial account continued to strengthen with net inflows to the government securities market, long term loans to the government, receipt of the third tranche of the Extended Fund Facility (EFF) of the International Monetary Fund (IMF), as well as continued portfolio investment inflows to the Colombo Stock Exchange (CSE).

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Considering developments and outlook in the domestic and international macroeconomic environment, the Monetary Board, at its meeting held on 25 September 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.

Given below are the key factors that the Monetary Board considered in arriving at the decision.

The Manufacturing Sector PMI recorded 54.4 in August which is a slight increase of 0.1 index points compared to July 2017. The increase was driven by the increase in the Stock of purchases sub-index due to slow progress in production activities during the month and maintaining buffer stocks to cater to the already received new orders to be supplied in the future. Suppliers’ Delivery Time lengthened mainly due to some company specific constraints. The Employment sub-index contracted due to the difficulties in finding unskilled employees in the market to address high labour turnover, especially in the apparel sector. However, all the sub-indices apart from the Employment sub-index of PMI recorded values above the neutral 50.0 threshold signalling an overall expansion in August. Moreover, the Expectation for activities remain positive for the next three months.