The Central Bank of Sri Lanka (the Central Bank) released its inaugural Market Operations Report (MOR) with the aim of enhancing awareness and knowledge among the stakeholders on monetary operations carried out by the Central Bank in line with the prevailing monetary policy stance. The MOR would be a catalyst to improve transparency and accountability of the Central Bank under the Flexible Inflation Target (FIT) framework by effectively communicating the monetary policy implementation process.
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The Central Bank of Sri Lanka publishes its inaugural Market Operations Report
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External Sector Performance June 2024
External sector performance in the first half of 2024 remained positive, with higher inflows in the form of workers’ remittances and earnings from tourism, despite a slightly higher trade deficit.
Merchandise trade deficit ( Y-o-Y ) widened in June 2024, although it narrowed compared to May 2024.
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CCPI based headline inflation accelerated, yet remained below the target, in July 2024
Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100)1 was recorded at 2.4% in July 2024. Inflation continued to remain below the targeted level of 5% even after this acceleration.
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SL Purchasing Managers’ Index (PMI) for Construction Industry – June 2024
Sri Lanka Purchasing Managers’ Index for Construction (PMI – Construction) reached 59.5 in June 2024, recording its highest index value in thirty consecutive survey rounds. Most of the respondents highlighted that the industry is mainly driven by projects funded by multilateral agencies, particularly related to road rehabilitation and water distribution.
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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 23 July 2024, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 25 basis points (bps) to 8.25 per cent and 9.25 per cent, respectively.
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Purchasing Managers’ Indices indicate expansions in both Manufacturing and Services activities in June 2024
Sri Lanka Purchasing Managers’ Index for Manufacturing (PMI – Manufacturing) recorded an index value of 56.6 in June 2024, indicating an expansion in manufacturing activities. All the sub-indices, except for employment, remained above the neutral threshold during the month.
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CCPI based headline inflation accelerated in June 2024
Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100) accelerated to 1.7% in June 2024 from 0.9% in May 2024. This acceleration in the headline inflation is broadly in line with the projections of the Central Bank of Sri Lanka (CBSL). Even with this acceleration, inflation remained well below the inflation target of 5%.
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External Sector Performance - May 2024
In May 2024, the external sector was supported by a narrowed trade deficit, higher inflows to the services account and higher workers’ remittances.
Merchandise trade deficit on Y-o-Y basis narrowed in May 2024, although widened during January-May 2024.
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SL Purchasing Managers’ Index (PMI) for Construction Industry – May 2024
Sri Lanka Purchasing Managers’ Index for Construction (PMI – Construction) recorded an index value of 54.5 in May 2024, indicating an improvement in construction activities. Many construction projects were back on course in May after the extended holidays of the previous month. However, several respondents mentioned that the prevailed adverse weather conditions had dampened the expected improvement.
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Implementation of the Banking (Amendment) Act, No 24 of 2024
The Central Bank of Sri Lanka (CBSL) wishes to announce the implementation of the Banking (Amendment) Act, No. 24 of 2024, effective from 15.06.2024. These amendments were formulated with a view to further strengthening the legal and regulatory framework applicable for licensed commercial banks and licensed specialised banks (licensed banks) to enhance the resilience of the banking sector of Sri Lanka.
The Banking Act, which provides for the introduction and operation of a procedure for the licensing of persons carrying on banking business and for the regulation and control of matters relating to the business of banking, was lastly amended in 2006. Therefore, the recent amendments were formulated considering the developments in the current regulatory framework, economic and market developments, the best practices and international standards adopted on prudential requirements to the context of the local banking sector. In addition, the observations and comments of the relevant stakeholders, viz., the banking sector, Panel of Auditors conducting audits of banks, other regulators and authorities were also considered, as appropriate, when drafting the amendments to the Banking Act.