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The Central Bank Responds to Misleading News Reports on Future Interest Rate Movements

The attention of the Central Bank of Sri Lanka has been drawn to a few recent media reports claiming that the Central Bank is expecting a rise in domestic interest rates in the period ahead. The reasons cited in the said reports for such expectation are a decline in reserves, higher than expected imports and increased interest rates on government securities.

The Central Bank emphasises that, based on its current projections, an increase in market interest rate is not expected in the near term. The recent movements in headline inflation, core inflation, inflation expectations, broad money growth, credit expansion, expansion in economic activity as well as the international reserve position do not justify the view that a rational market would also expect an increase in interest rates.

Land Price Index - Second Half of 2017

The Central Bank of Sri Lanka (CBSL) compiles and analyses several indicators, in order to monitor the developments in the real estate sector. Accordingly, the Land Price Index (LPI) is compiled biannually covering the Colombo District since 1998. In the compilation process of LPI, CBSL uses the land price data collected by the Valuation Department of Sri Lanka covering around 50 centers of five Divisional Secretariat (DS) divisions1 in the Colombo District. In view of the diverse nature of the land use and to maintain homogeneity, three indices for residential, commercial and industrial lands are computed separately. The overall LPI is computed by taking the average of these three sub-indices.


External Sector Performance - December 2017

Sri Lanka’s external sector performance continued to improve in the month of December 2017, mainly with higher inflows to the Financial Account of the Balance of Payments (BOP). Although earnings from exports increased at a higher rate, the increase in import expenditure resulted in widening the trade deficit in December 2017. Continued inflows by way of tourist earnings and workers’ remittances, however, have contributed in curtailing the expanded trade deficit to a certain extent. Improvement in short-term and long-term capital inflows continued during the month. Reflecting the favourable developments in the external sector, the BOP recorded a surplus of US dollars 2,068 million in 2017, while gross official reserves of the country stood at US dollars 8.0 billion as at end 2017. Meanwhile, the Sri Lankan rupee depreciated by 2.0 per cent during 2017.


Inflation in January 2018

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), decreased to 5.4 per cent in January 2018 from 7.3 per cent in December 2017, on year-on-year basis. This decline is due to the high base prevailed in January 2017 as well as the monthly decline in Food prices in January 2018.

The change in the NCPI measured on an annual average basis decreased from 7.7 per cent in December 2017 to 7.6 per cent in January 2018.

When the monthly change is considered, the NCPI decreased from 126.6 index points in December 2017 to 125.8 index points in January 2018. This monthly decline was mainly due to the decline in prices of the items in the Food category, particularly that of vegetables, green chillies, coconuts, red onions and rice. Nevertheless, prices of fresh fish and some fruits increased. Meanwhile, price increases were observed in Restaurants and Hotels; and Transport subcategories in the Non-food category. 

Sri Lanka Listing in the Financial Action Task Force and Measures Initiated by Sri Lanka to Improve Global AML/CFT Standards

The Financial Action Task Force (FATF), the global policy setter has introduced 40 recommendations on Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) in order to combat money laundering/ terrorist financing and other related offences globally.  The Asia Pacific Group on Money Laundering (APG) functions as the FATF’s regional affiliated body and monitors the level of compliance with the FATF recommendations in the region. Sri Lanka is a founding member of APG.  

The FATF evaluates legal, institutional framework and effective implementation of AML/CFT measures of countries regularly through regional monitoring bodies. Sri Lanka was subjected to its 1st Mutual Evaluation (ME) by APG in 2006 and the 2nd ME during 2014/15. The 2nd Mutual Evaluation Report (MER) on Sri Lanka which was adopted in July, 2015, recommended Sri Lanka to initiate a number of actions to rectify the AML/CFT deficiencies identified during the ME. 

SL Purchasing Managers’ Index Survey - January 2018

The Manufacturing Sector PMI recorded 51.7 index points in January from 59.1 index points in December 2017. This indicates that the Manufacturing activities expanded at a slower rate in January compared to December 2017 after the seasonal peak observed during last two months of the year 2017. This was mainly driven by the slowdown in the Production and New Orders sub-indices. Further, the Employment sub-index also slowed down during the month as compared to December 2017 while Stock of Purchases subindex contracted during the month. Meanwhile, the Suppliers’ Delivery Time sub-index lengthened at a slower rate compared to previous month. Overall, all the sub-indices of PMI except from stock of purchases sub-index recorded values above the neutral 50.0 threshold signalling an overall expansion in January 2018. Moreover, The Expectation for activities indicates an improvement for the next three months.