The Monetary Board, at its meeting held on 02 August 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.
In arriving at the above decision, the Monetary Board took into consideration current and expected developments in the domestic and international macroeconomic environment and the need to maintain inflation at mid-single digit levels over the medium term.
Sri Lanka hosted the 20th Annual Meeting of the Asia/Pacific Group on Money Laundering (APG) in Colombo during July 15-21, 2017 with the participation of 408 delegates from 41 member countries of the APG and 24 observers from several international observer organisations. The event was graced by His Excellency the President, Maithripala Sirisena and Hon. Mangala Samaraweera, Minister of Finance and Mass Media.
Sri Lanka’s national commitment in combating money laundering (ML) and financing of terrorism (FT) and other such criminal offences such as corruption and drug trafficking were emphasised by His Excellency the President, Maithripala Sirisena and the Hon. Minister of Finance and Mass Media. The pressing need for strong and effective cooperation among local and international stakeholders was further highlighted by His Excellency the President.
Sri Lanka’s external sector strengthened with significant inflows to the financial account of the balance of payments (BOP) with proceeds from the 11th international sovereign bond (ISB) issuance and a syndicated loan facility in May 2017. These inflows resulted in an increase in gross official reserves from US dollars 5.0 billion as at end April 2017 to US dollars 6.8 billion as at end May 2017. Investor confidence in the Sri Lankan economy continued to be buoyant with continuous inflows to the government securities market and the Colombo Stock Exchange (CSE). However, the current account of the BOP demonstrated a mixed performance during May with a widening of the trade deficit and a moderation in earnings from tourism and workers’ remittances.
The Central Bank of Sri Lanka will introduce a new primary issuance system for Treasury bonds (T-bonds). Effective from July 27, 2017, the new system replaces the existing fully auction based issuance system for T-bonds, that has been in practice since February 2015. The main purpose of introducing the new system is to further enhance the efficiency and transparency of the domestic borrowings of the Government.
The new system is more structured and includes regular monthly T-bond auctions. Each monthly auction offers two T-bond series of different maturities and tenures of the series are expected to match the resource availability in the market.
The Central Bank of Sri Lanka (CBSL) wishes to inform the general public that a preliminary investigation was conducted by CBSL and as per the information available at present, it appears that this incident had occurred inadvertently relating to certain banking information of 4,630 customers. It is also observed that this incident is attributable to internal lapses in managing and using customer information within HNB. Therefore, this subject is under further investigation by both HNB and CBSL.
Accordingly, interim supervisory measures have already been initiated to take action against those who are responsible for the incident in terms of legal provisions as well as relevant supervisory standards.
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), decelerated to 6.3 per cent in June 2017 from 7.1 per cent in May 2017, on year-on-year basis. Both Food and Non-food categories contributed towards the year-on-year inflation in June 2017.
The change in the NCPI measured on an annual average basis remained at 6.1 per cent in June 2017, at same level of the previous month.
The second review of the three-year Extended Fund Facility (EFF) obtained by Sri Lanka in June 2016 has been successfully completed by the International Monetary Fund (IMF) and the third tranche to the value of SDR 119.894 million (approximately US dollars 167.2 million) will be disbursed on 19 July 2017.
The Central Bank of Sri Lanka hosted the Standing Technical Meeting on July 12, 2017 and the 46th Meeting of the Board of Directors of the Asian Clearing Union (ACU) on July 13, 2017, respectively.
The ACU presently has a membership of nine Central Banks/ Monetary Authorities. Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka are the current members of ACU. The Board of Directors of the ACU consists of the Governors of Central Banks/Heads of Monetary Authorities in these countries. The ACU functions under a Secretary General, responsible to the Board of Directors and has its Secretariat located in Teheran, Iran.
The Manufacturing Sector PMI recorded 56.1 in June which is a decrease of 1.8 index points compared to May 2017. This indicates that the manufacturing activities expanded, albeit at a slower rate in June 2017, mainly due to the decrease in New Orders and Production sub-indices which were partly influenced by the adverse weather conditions. As a result, excessive stock levels were created and a marginal decline in lengthening of the suppliers’ delivery time was experienced. However, the Employment level improved recovering from the contraction experienced in the previous month. Further, all the sub-indices of PMI recorded values above the neutral 50.0 threshold signalling an overall expansion. Moreover, the expectation for activities indicates an improvement for the next three months.
With due consideration to the prevailing and evolving domestic and international macroeconomic environment, the Monetary Board, at its meeting held on 22 June 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.
The decision of the Monetary Board is consistent with the objective of maintaining inflation at mid-single digit levels over the medium term and thereby facilitating a sustainable growth trajectory. The rationale underpinning the monetary policy stance is set out below.
