Purchasing Managers’ Indices for both Manufacturing and Services activities returned to positive territory in March 2023.
Manufacturing PMI turned positive in March 2023, after nine consecutive survey rounds, recording an index value of 51.4. This month-on-month expansion was driven by the increase in New Orders and Production sub-indices mainly due to the seasonal demand. However, Employment, Stock of Purchases and Suppliers' Delivery Time sub-indices remained below the neutral threshold.
The Central Bank of Sri Lanka wishes to clarify a misreporting of the views expressed by Governor of the Central Bank following a recent media engagement. Such media reports claim that ‘Governor anticipates a difficult period ahead in the economy’. This is a gross misinterpretation of the views expressed by Governor, taken out of the context of the discussion on challenges that the economy could face in the period ahead if the envisaged reforms are delayed or derailed. Governor viewed that the difficult and painful policy measures implemented by the Government and the Central Bank thus far have helped to stabilise the economic conditions, compared to the unprecedented socio-economic tensions witnessed in 2022.
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 04 April 2023, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 15.50 per cent and 16.50 per cent, respectively. Having considered the recent and expected economic developments, and macroeconomic projections on domestic and global fronts, the Board viewed that the maintenance of the prevailing tight monetary policy stance is necessary to ensure that monetary conditions remain sufficiently tight to facilitate the continuation of the ongoing disinflation process amidst the improvements in market sentiments following the finalisation of the Extended Fund Facility (EFF) from the International Monetary Fund (IMF) and the downward shift in elevated market interest rates reflecting the falling risk premia.
Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100) decreased to 50.3% in March 2023 from 50.6% in February 2023. The decline in the headline inflation is broadly in line with the disinflation path envisaged by the Central Bank of Sri Lanka (CBSL) in 2023.
Import expenditure declined notably, compared to the reduction in export earnings in February 2023 (y-o-y), resulting into sizeable moderation in the trade deficit.
Workers’ remittances and earnings from tourism continued to improve in February 2023.
Gross official reserves strengthened further by end February 2023, compared to recent months.
The exchange rate appreciated notably in March 2023 following the greater flexibility that was allowed in the determination of the exchange rate.
The Colombo Stock Exchange (CSE) and foreign investment in the government securities market recorded net inflows during February 2023.
The Extended Fund Facility (EFF) from the International Monetary Fund (IMF) of US dollars 3 billion was approved and the first tranche was disbursed in March 2023.
On 20th March 2023, the IMF Board approved Sri Lanka's IMF program, unlocking up to $7bn in funding from the IMF and other IFIs. The IMF program provides a clear roadmap in terms of policy implementation and will stabilize the economy of Sri Lanka and allow the country to regain its growth potential and address its economic vulnerabilities.
Today, we held an investor presentation in order to explain the current macroeconomic situation in Sri Lanka, and outline the key pillars and objectives of the IMF program as well as the next steps with regard to the engagement with creditors.
Considering the recent public inquiries and the developments observed relating to cryptocurrencies, which are also commonly referred to as “crypto”, the Central Bank of Sri Lanka (CBSL) wishes to reiterate to the public of the significant risks associated with using and investing in cryptocurrency. Cryptocurrency is a type of virtual currency that is generated by private entities and not by a monetary authority of a country. The term ‘cryptocurrency’ refers to a digital representation of value that is implemented using cryptography and Distributed Ledger Technology (DLT) or similar technology. It is observed that crypto-trading is widely promoted by certain entities as a profitable investment.
The IMF Board approved a 48-month extended arrangement under the Extended Fund Facility (EFF) of SDR 2.286 billion (about US$3 billion) to support Sri Lanka’s economic policies and reforms.
The objectives of the EFF-supported program are to restore macroeconomic stability and debt sustainability, safeguarding financial stability, and stepping up structural reforms to unlock Sri Lanka’s growth potential. All program measures are mindful of the need to protect the most vulnerable and improving governance.
Close collaboration between Sri Lanka and all its creditors will be critical to expedite a debt treatment that will restore debt sustainability consistent with program parameters.
Purchasing Managers’ Indices for both Manufacturing and Services activities contracted in February 2023.
Manufacturing PMI recorded an index value of 42.3 in February, indicating a continued setback in manufacturing activities on a month-on-month basis.
Services sector PMI dropped to an index value of 48.7 in February 2023 indicating a deterioration across the services sector.
The Central Bank of Sri Lanka Bill, which will be the governing legislation of the Central Bank of Sri Lanka (CBSL) once it is enacted, has been presented to Parliament. Further, it is in the public domain for comments.
In this regard, the Governor of the CBSL, Dr. P Nandalal Weerasinghe will deliver a public lecture in Sinhala medium on the proposed Bill followed by a discussion with a panel of resource persons where the audience will be given an opportunity to clarify concerns, if any.
The event, which is orgainsed by the Centre for Banking Studies of CBSL, will be held on 16 March 2023 from 02.30pm to 4.30pm at the Auditorium of Centre for Banking Studies, No 58, Sri Jayawardenepura Mawatha, Rajagiriya.
Interested parties are invited to attend the event. The lecture will also be livestreamed via official YouTube channel and Facebook page of CBSL.
