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Monetary Policy Review - No. 3 of 2019

The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 30 May 2019, decided to reduce the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank by 50 basis points to 7.50 per cent and 8.50 per cent, respectively. The Board arrived at this decision following a careful analysis of current and expected developments in the domestic economy and the financial market as well as the global economy, with the broad aim of stabilising inflation at mid-single digit levels in the medium term to enable the economy to reach its potential.

External Sector Performance - March 2019

During the first quarter of 2019, the deficit in the trade account contracted to US dollars 1,661 million from US dollars 2,982 million recorded in the first quarter of 2018, as export earnings increased by 5.6 per cent (year-on-year) while import expenditure declined by 19.3 per cent.

In March 2019, the deficit in the trade account narrowed to US dollars 592 million, compared to US dollars 871 million in March 2018.

The considerable reduction in the trade deficit in March 2019 was due to anotable decline in import expenditure by 12.6 per cent (year-on-year)which was further supported by the increase of exportearnings by 2.6 per cent (year-on-year).

Inflation Increased in April 2019

Headline inflation as measured by the year-on-year change in the National Consumer Price Index (NCPI, 2013=100)  increased to 3.6 per cent in April 2019 from 2.9 per cent in March 2019 due to the monthly increases of prices of items in both Food and Non-food categories. Meanwhile, in April 2019, year-on-year Food inflation was -1.2 per cent while Non-food inflation continued its increasing trend for the fourth consecutive month recording a 7.5 per cent in the current month.

The change in the NCPI measured on an annual average basis increased to 1.9 per cent in April 2019 from 1.7 per cent in March 2019. 

Sri Lanka Purchasing Managers’ Index - April 2019

Manufacturing activities contracted recording the all-time low index value of 41.0 in April 2019 with a decline of 25.9 index points from March 2019. The decline of manufacturing PMI is mainly driven by the significant drop in New Orders and Production especially in manufacturing of food, beverages and tobacco and manufacturing of textiles, wearing apparels, leather and related activities products. This decline was mainly due to the New Year holidays in April and the security concerns that arose following the Easter Sunday attack which affected the smooth functioning of factory operations. Most respondents, especially in textile and apparel sector, highlighted that they had to restrict working hours in factories due to security concerns and were unable to achieve the desired production levels.