The underlying fundamentals do not warrant the current pressure on the Sri Lanka rupee. Gross external reserves are presently at a healthy USD 9.1 bn and the real effective exchange rate indices indicate that the currency is competitive.
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CBSL Determined to Curb Unwarranted Depreciation of the Rupee
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SL Purchasing Managers’ Index - April 2018
The Manufacturing Sector PMI contracted recording an index value of 45.5 in April with a decline of 20.1 index points from March. The new year holidays in April dragged back the manufacturing activities following the peak level of activities observed in the previous month, and was in line with the pattern observed in previous years. The contraction of PMI in April was largely attributable to the contraction in the Production and New Orders sub-indices. Stock of Purchases and Employment sub-indices also decreased during the month. Moreover, lengthening of the Suppliers’ Delivery Time sub-index slowed down during the month which partially indicates that suppliers are less busy. Respondents highlighted that increase in unauthorised absentees following new year holidays disturbed the manufacturing activities.
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External Sector Performance – February 2018
A notable growth in tourist arrivals and continuous net foreign inflows to the stock exchange amidst a significant widening of the trade deficit characterised the external sector performance in February 2018. A surge in gold imports was the primary driver behind the fastest increase in overall merchandise imports in nearly 3-1/2-years, resulting in a further widening of the trade deficit in February 2018. Continuing the growth momentum observed in January 2018, earnings from tourism increased significantly in February 2018. However, workers’ remittances declined in February 2018 following a growth in January. The financial account of the balance of payments (BOP) recorded a net inflow of foreign investments to the stock exchange, helping to counterbalance a net outflow in the government securities market in February 2018.
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The Central Bank of Sri Lanka Maintains Policy Interest Rates Unchanged
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 10 May 2018, decided to maintain policy interest rates at their current levels. Accordingly, the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) remain at 7.25 per cent and 8.50 per cent, respectively. The Board’s decision aims at stabilising inflation in mid-single digit levels in the medium term, thereby contributing to a favourable growth outlook for the Sri Lankan economy.
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SL Purchasing Managers’ Index Survey - June 2016
The Manufacturing PMI recovered to the positive territory in June 2016 registering 55.1 index points, from the contraction observed in the last two months, which is an increase of 7.2 index points from May 2016. This improvement was bolstered by the significant increase observed in Production and New Orders Indices. Moreover, all the Sub-indices of PMI, apart from Suppliers’ Delivery Time increased compared to the previous month. Overall data points to an expansion where all the sub-indices apart from the Employment Index are above the neutral 50.0 threshold. The expectations for activities also indicated an improvement for the next three months. On yearon-year basis, the PMI index witnesses a marginal drop of 2.4 index points compared to June 2015.
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Foreign Sentiment Signals Confidence in Sri Lanka’s Economic Performance and Potential
In recent days, serious concerns have been expressed regarding the performance of the Sri Lankan economy.
In this context, it is instructive to gauge the level of external support for the Sri Lankan economy from international capital markets. This would be an independent barometer of the health of the Sri Lankan economy as international capital markets are hard-nosed in their assessments.
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The Annual Report of the Central Bank of Sri Lanka for the Year 2017
In terms of Section 35 of the Monetary Law Act No. 58 of 1949, the sixty eighth Annual Report of the Monetary Board of the Central Bank of Sri Lanka was presented to Hon. Mangala Samaraweera, the Minister of Finance and Mass Media, by Dr. Indrajit Coomaraswamy, the Governor of the Central Bank of Sri Lanka.A summary of the performance of the Sri Lankan economy in 2017 as reflected in the Annual Report is given below:
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Clarification on Treasury Bond Service Payments
The Central Bank of Sri Lanka (CBSL) has observed media reports erroneously highlighting lack of funds to pay-off Treasury bonds before their date of maturity.
CBSL notes that there is no accuracy in above media reports and highlights the unblemished debt service payment record of the government in servicing both domestic and foreign debt. The payment of interest and principal at maturity on due dates (timely payment) and not before the due date is followed to the rule by CBSL in discharging its agency function of managing public debt on behalf of the government.
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inflation in June 2016
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, increased to 6.4 per cent in June 2016 from 5.3 per cent in May 2016, on year-on-year basis. Both Food and Non-food categories contributed towards the year-on-year inflation in June 2016.
The change in the NCPI measured on an annual average basis increased to 3.1 per cent in June 2016 from 2.7 per cent in May 2016.
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Inflation in March 2018
Headline 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), continued to follow the declining trend exhibited since November 2017. As such, the year-on-year NCPI headline inflation decreased to 2.8 per cent in March 2018, lowest since April 2016, from 3.2 per cent in February 2018. The monthly decline in Food prices in March 2018 supported by the favourable supply conditions attributed to this sharp decline in year-on-year inflation in March 2018. The change in the NCPI measured on an annual average basis decreased from 7.2 per cent in February 2018 to 6.7 per cent in March 2018.