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The Central Bank’s View on the Sector Comment on Sri Lankan Banks by Moody’s Investors Service

On 27 September 2019, Moody’s Investors Service issued a Sector Comment on Sri Lankan banks titled “Sri Lanka’s lending rate cut is credit negative for banks.” In this respect, the Central Bank of Sri Lanka is of the view that the conclusion by Moody’s has not taken into account the complete information set, and is therefore unfounded.

External Sector Performance - July 2019

The trade deficit widened in July 2019 as exports fell more than the decline in imports. Export earnings recorded a decline of 7.0 per cent (year-on-year) after a steady growth for several months while import expenditure declined by 2.2 per cent (year-on-year) in July 2019.

The decline in export earnings in July 2019 can be largely attributed to a reduction in earnings from petroleum products due to lower prices of bunker fuel and the export of a naval craft in July 2018, which resulted in a higher export base in the corresponding month of the previous year.

The trade deficit widened to US dollars 717 million in July 2019 compared to the deficit of US dollars 316 million recorded in June 2019.

Tourist arrivals observed a notable recovery from the impact of the Easter Sunday attacks recording an increase of 83.4 per cent in July 2019 over the preceding month.

Withdrawal of the Monetary Law Act Order on Maximum Interest Rates on Sri Lanka Rupee Deposits of Licensed Banks

Consequent to the issuance of the Directions to the licensed banks by the Central Bank of Sri Lanka on Enhancing Efficiency of the Transmission of Recent Policy Decisions to Market Lending Rates, where licensed banks are required to reduce its rupee denominated market lending rates, the Monetary Board has decided to withdraw the Monetary Law Act Order No. 01 of 2019 issued on 26 April 2019 imposing Maximum Interest Rates on Sri Lanka Rupee Deposits, with effect from 24 September 2019.

Provincial Gross Domestic Product - 2018

Western province continued to account for the largest share as per the Provincial Gross Domestic Product (PGDP)  estimated by the Statistics Department of the Central Bank of Sri Lanka (CBSL) for 2018. Central and North Western provinces were the second and the third highest contributors, respectively.

The highest increase in PGDP share on year-on-year basis was reported in Western province. The only other province that reported an increase was North Central province. The shares of Central, Sabaragamuwa and Uva provinces decreased in 2018, while the shares of North Western, Southern, Eastern and Northern provinces remained unchanged.