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 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.
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).
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.
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.
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.
The recent salary revision for the period 2024-2026 made by the Central Bank of Sri Lanka (CBSL), post the collective agreement between the Governing Board and the employee representatives, created much discourse among the public.
In response to this situation, a majority of the senior management and professionals of CBSL made a collective decision to consider a revision to their salaries. This decision was communicated to the Committee on Public Finance (COPF) on 16th March 2024, prior to and independent of the recommendations made by COPF.
An International Monetary Fund (IMF) mission visited Sri Lanka during 07 - 21 March 2024 for the second review of the 4-year Extended Fund Facility (EFF) arrangement and the 2024 Article IV consultation. Subsequent to the mission, the IMF staff team and the authorities have reached stafflevel agreement on economic policies to conclude the second review of the IMF-EFF.
Sri Lanka Purchasing Managers’ Index for Manufacturing (PMI – Manufacturing) recorded an index value of 56.0 in February 2024, indicating a continued expansion in manufacturing activities. This improvement was attributable to the increases observed in all sub-indices.
As per the section 63(2) of the Central Bank of Sri Lanka Act, the Central Bank has published the Macroprudential Policy Framework. This publication aims to create awareness among relevant stakeholders about the macroprudential policy making process as well as the role of macroprudential policy in the financial system.
This document explains the objectives and purpose of macroprudential policies; systemic risk surveillance and indicators; macroprudential tools; interactions with other policies of the Central Bank; institutional set-up; and communication of macroprudential stance/systemic risk developments by the Central Bank. This publication will be a useful and reliable source of reference for those who are interested in the macroprudential approach of the Central Bank as the macroprudential authority of Sri Lanka.
