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Monetary Policy Review - No. 1 of 2018

Considering the recent developments in the domestic and international macroeconomic environment, the Monetary Board, at its meeting held on 14 February 2018, 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.

Clarification over Recent Media Reports on Recording of Government Debt

Attention of the Central Bank of Sri Lanka (CBSL) has been drawn over the media reports on Government debt recording and maintenance of accounts published on 8th February 2018. 

CBSL compiles and publishes Central Government debt based on its database on issuance of domestic debt and international commercial borrowings on behalf of the Government and also the information it receives from the Ministry of Finance (MoF) and External Resources Department (ERD) of the Ministry of National Policies and Economic Affairs. CBSL regularly and closely coordinates with MoF and ERD towards the accuracy of its published debt statistics and in this connection it also has the accessibility to the debt recording system maintained by ERD. Further, in compilation and servicing of Central Government debt, CBSL uses its own recording systems with respect to domestic and international commercial borrowings. Central Government debt so compiled by CBSL has been reviewed and accepted by international agencies including the International Monetary Fund.

Issue of a Circulation Standard Commemorative Currency Note to Mark the 70th Independence Celebration of Sri Lanka

The Central Bank of Sri Lanka issued a circulation standard commemorative currency note in the denomination of Rupees 1000 to mark the 70th Independence Celebration in the country on 04.02.2018. This is the 4th commemorative note that was issued, by the Central Bank.

The size, predominant color and the security features of this commemorative currency note are same as in the current circulating Rs. 1000 note in 11th currency note series except the following changes only.

On the front of the note (shown below):

External Sector Performance - November 2017

The external sector performance in November 2017 was supported by continued inflows to the financial account of the Balance of Payments (BOP) mainly with higher foreign inflows to the government securities market, and marginally improved earnings from tourism. Although a double-digit growth in exports has been recorded, partly driven by the low base recorded in November 2016, the trade deficit expanded considerably during the month with higher imports. Meanwhile, workers’ remittances continued to decline, owing to adverse economic and geopolitical conditions prevailing in the Middle Eastern region. Accordingly, the BOP recorded an overall surplus of around US dollars 2.0 billion by end November 2017. Gross official reserves also increased to US dollars 7.3 billion (equivalent to 4.2 months of imports) by end November 2017 from US dollars 6.0 billion recorded at end 2016.


Inflation in December 2017

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 7.3 per cent in December 2017 from 8.4 per cent in November 2017, on year-on-year basis. This decrease is due to the high base prevailed in December 2016.

The change in the NCPI measured on an annual average basis increased from 7.5 per cent in November 2017 to 7.7 per cent in December 2017.

When the monthly change is considered, the NCPI increased from 126.4 index points in November 2017 to 126.6 index points in December 2017. This marginal monthly increase was mainly due to the increase in prices of the items in the Food category. Price increase of vegetables, fresh fish, and red onions were noticeable. Nevertheless, prices of rice, green chillies and banana declined. There were no significant price increases recorded in the Non-food category.

SL Purchasing Managers’ Index Survey - December 2017

The Manufacturing Sector PMI recorded 59.1 in December which is a marginal increase of 0.3 index points compared to November 2017. This indicates that the Manufacturing activities expanded at a higher pace in December compared to November 2017. This was mainly driven by the increase in the Production sub-index. Further, Stock of Purchases and Employment sub-indices also expanded at a higher pace while New Orders sub-index expanded, albeit at a slower rate, during the month as compared to November 2017. Meanwhile, the Suppliers’ Delivery Time sub-index lengthened at a higher rate compared to previous month. Overall, all the sub-indices of PMI recorded values above the neutral 50.0 threshold signalling an overall expansion in December 2017. Moreover, The Expectation for activities indicates an improvement for the next three months.