Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100)1 showed some uptick to record 1.5% in April 2024 compared to 0.9% in March 2024.
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CCPI based headline inflation showed some uptick in April 2024
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SL Purchasing Managers’ Index (PMI) for Construction Industry – March 2024
Sri Lanka Purchasing Managers’ Index for Construction (PMI – Construction) indicates an expansion in construction activities in March, as reflected by the Total Activity Index, which recorded an index value of 55.9. This is the third consecutive month that the index remained above the neutral threshold, denoting a steady improvement in construction activities.
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The Central Bank of Sri Lanka hosted the FSB RCG Asia Meeting in Colombo on 29 April 2024
The Financial Stability Board (FSB) Regional Consultative Group for Asia (RCG Asia) met on 29 April 2024 in Colombo1. The discussions were centered around recent financial market developments and vulnerabilities that warranted closer monitoring. Accordingly, the group discussed ways to promote the implementation of FSB regulatory framework for crypto-asset activities across the region and recent developments in artificial intelligence, its growing use in the financial sector, and implications for financial stability. Members also reviewed progress being made within the region on addressing financial risks from climate change and discussed progress on enhancing cross-border payments and the key challenges in making them faster, cheaper, and more transparent and inclusive.
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The Central Bank of Sri Lanka releases its inaugural Annual Economic Review and Financial Statements and Operations of the Central Bank for the Year 2023
The inaugural publication under Section 80 of the Central Bank of Sri Lanka Act, No. 16 of 2023 (CBA), namely, the Annual Economic Review 2023, and the inaugural publication under Section 99 of the CBA, namely, Financial Statements and Operations of the Central Bank 2023, were presented to Honourable Ranil Wickremesinghe, the President and Minister of Finance, Economic Stabilization and National Policies, by Dr. P Nandalal Weerasinghe, the Governor of the Central Bank of Sri Lanka, today (25 April 2024).
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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.
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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.
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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).
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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.
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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.
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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.