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Relaxation of Restrictions Imposed on the Standing Facilities

The Central Bank of Sri Lanka introduced restrictions on the usage of the Standing Facilities by the Licensed Commercial Banks (LCBs) under the Open Market Operations (OMOs), with effect from 16 January 2023. Accordingly, access to the Standing Deposit Facility (SDF) was limited to a maximum of five (05) times per calendar month, while access to the Standing Lending Facility (SLF) was limited to 90 per cent of the Statutory Reserve Requirement (SRR) of each LCB, at any given day. These measures were imposed with the intention of reducing the overdependence of LCBs on the overnight facilities offered by the Central Bank, supporting the reactivation of the domestic money market, particularly the call money market, and inducing LCBs to introduce internal corrective measures.

The Government of Sri Lanka and the World Bank sign an agreement for financing of $150 million to strengthen the resilience of Sri Lanka’s financial sector

The Government of Sri Lanka (GOSL) and the World Bank signed an agreement for $150 million in financing for Sri Lanka to strengthen the resilience of the financial sector through the Financial Sector Safety Net Strengthening Project (FSSNP). In parallel, the project agreement between the World Bank and the Central Bank of Sri Lanka (CBSL) was also entered in respect of the project implementation arrangements.

The project development objective is to strengthen Sri Lanka's financial sector safety net with the focus on the Sri Lanka Deposit Insurance Scheme (SLDIS), which is managed by the CBSL. The project also aims to strengthen the financial and institutional capacity of SLDIS in line with international best practices for effective deposit insurance schemes.

The CBSL will be the Implementing Agency of FSSNP. The Deposit Insurance Scheme of Sri Lanka was legally instituted and named as the Sri Lanka Deposit Insurance Scheme with the enactment of the Banking (Special Provisions) Act, No. 17 of 2023.

Governing Board Appoints Six New Assistant Governors

The Governing Board, at its meeting held on 19th January 2024 promoted Dr. C Amarasekara, Mrs. W A Dilrukshini, Dr. P K G Harischandra, Mrs. D S W Samaratunga, Mrs. E H Mohotty and Mrs. R D T Gunasekara to the post of Assistant Governors with effect from 22nd January 2024.

External Sector Performance - December 2023

Merchandise trade deficit for 2023 recorded the lowest level since 2010, supported by relatively larger contraction in import expenditure than that of export earnings. 

The trade deficit widened in December 2023 compared to December 2022. However, imports continued to remain moderated, despite recent relaxations of import restrictions.

Workers’ remittances recorded a healthy level of around US Dollars 6 billion in 2023 and recorded the highest monthly value in December 2023 since April 2021. 

Earnings from tourism for the year 2023 are estimated to have surpassed US dollars 2 billion as a result of a notable revival in tourist arrivals.

Foreign investments in the government securities market recorded net inflows in 2023.

Gross Official Reserves improved notably to US dollars 4.4 billion by end December 2023 and the Sri Lanka rupee recorded an appreciation of 12.1 per cent during the year 2023.

CCPI based headline inflation continued to increase in January 2024

Headline inflation, as measured by the year-on-year (Y-o-Y) change in the Colombo Consumer Price Index (CCPI, 2021=100) increased to 6.4% in January 2024 from 4.0% in December 2023. This increase in the headline inflation is mostly in line with the projections envisaged by the Central Bank of Sri Lanka (CBSL).

The Food inflation (Y-o-Y) increased to 3.3% in January 2024 from 0.3% in December 2023, while the Non-Food inflation (Y-o-Y) increased to 7.9% in January 2024 from 5.8% in December 2023. Monthly change of CCPI recorded 2.87% in January 2024 due to the price increases of 1.21% observed in the items of Food category and 1.66% observed in the items of Non-Food category. Meanwhile, the core inflation (Y-o-Y), which reflects the underlying inflation in the economy, increased to 2.2% in January 2024 from 0.6% in December 2023.

Sri Lanka Purchasing Managers’ Index (Construction) - December 2023

Construction PMI, as reflected by the Total Activity Index value of 48.6 in December 2023, indicated a slower contraction in construction activities compared to last month. The respondents mentioned that the limited availability of project work continued to hamper the activity levels.

New Orders declined in December, broadly at a similar pace compared to the previous month. Many respondents mentioned that currently they are heavily relying on foreign-funded projects. Meanwhile, Employment contracted mainly due to the layoffs in line with the project completions. Further, Quantity of Purchases remaind contracted during the month since the ongoing work and the upcoming projects continued to decline. In the meantime, Suppliers’ Delivery Time remained lengthened in Decemeber.

With the lack of upcoming projects and the impact of tax revisions on price levels, the industry outlook for the next three months is on the downside.

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