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Monetary Policy Review - No. 4 of 2017

With due consideration to the prevailing and evolving domestic and international macroeconomic environment, the Monetary Board, at its meeting held on 22 June 2017, 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. 

Inflation in May 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), decelerated to 7.1 per cent in May 2017 from 8.4 per cent in April 2017, on year-on-year basis. This deceleration is mainly due to the base effect amid a monthly increase in NCPI. Both Food and Non-food categories contributed towards the year-on-year inflation in May 2017.

The change in the NCPI measured on an annual average basis increased to 6.1 per cent in May 2017 from 6.0 per cent in April 2017.

Central Bank of Sri Lanka clarifies the position on wilfull mutilation, alteration and defacement of currency notes

The attention of the Central Bank of Sri Lanka (CBSL) has been drawn to misinterpretation of the facts contained in the newspaper advertisements published by the CBSL in implementation of its Clean Note Policy. The Clean Note Policy has been introduced by the CBSL aiming at maintaining the quality standards of the currency notes and thereby helping to distinguish between genuine notes and counterfeits. It is also expected through this policy to enhance image of the country and promote efficient and cost effective currency notes processing activities.

Wilfull mutilation, alteration or defacement of currency notes are offenses punishable under the Monetary Law Act. Moreover the CBSL has to increase its note printing to replace such wilfully mutilated, altered or defaced currency notes requiring it to incur large amount of public funds which otherwise could have been spent for more meaningful purposes. The CBSL has no obligation to entertain claims in respect of deliberately mutilated, altered or defaced currency notes.

SL Purchasing Managers’ Index Survey - May 2017

The Manufacturing Sector PMI recorded 57.9 in May which is an increase of 16.1 index points compared to April 2017. This indicates that the manufacturing activities recovered in May 2017, largely attributable to the expansion in Production and New Orders subindices, following the seasonal contraction observed for the month of April 2017. Further, all the sub-indices of PMI apart from Employment sub-index recorded values above neutral 50.0 threshold. However, adverse weather conditions experienced from 25th day of the month slowed down the expected recovery of the operations due to employee absenteeism and lengthening of the suppliers’ delivery time. Nevertheless, the expectation for activities indicates an improvement for the next three months.The Services Sector PMI recorded 55.3 index points in May from 54.2 index points in April 2017.The moderate acceleration in Services sector was supported by new businesses, business activity and employment.

External Sector Performance - March 2017

Reversing the declining trend observed during the last two months, earnings from exports increased by 9.8 per cent (year-on-year) in March 2017. However, the trade deficit widened in March 2017 compared to the corresponding month of 2016 as the increase in export earnings was offset by the higher increase in import expenditure. Tourist earnings declined in March 2017, as in the previous month, with the partial closure of the Bandaranaike International Airport (BIA) for resurfacing of the runway. Meanwhile, workers’ remittances also recorded a decline in March 2017. In the financial account, foreign inflows to the Colombo Stock Exchange (CSE) continued to record a net inflow while a reversal of trend in net outflows by foreign investors was observed in the government securities market with marginal net inflows during the month.

Appointment of a New Deputy Governor

The Monetary Board, with the concurrence of the Hon. Minister of Finance, has promoted Assistant Governor, Mr. K D Ranasinghe to the post of Deputy Governor of the Central Bank of Sri Lanka (CBSL) with effect from 30th April 2017. 

Mr. K D Ranasinghe has nearly 31 years of experience in the Central Bank especially in the areas of Economic and Price Stability, and other Agency Functions carried out by the Central Bank. Prior to the appointment as a Deputy Governor, Mr. Ranasinghe held the position of the Assistant Governor in-charge of Statistics, International Operations, Domestic Operations, Employees' Provident Fund, Human Resources and Facilities Management Departments. Mr. Ranasinghe served as the Director of Economic Research Department of the Central Bank before he was promoted as an Assistant Governor. Mr. Ranasinghe served as an Alternate Executive Director for Bangladesh, Bhutan, India and Sri Lanka at the International Monetary Fund (IMF), Washington D.C., USA during the period from August 2012 to April 2015.