LOOSE POLICY: A combination of loose monetary policy and loose fiscal policy with a state salary hike had generated an unsustainable credit bubble and imports in Sri Lanka.
ECONOMYNEXT - Sri Lanka's vehicle registrations fell to 50,555 in August 2015, from 62,221 in July 2014, but were still up 31 percent from a year earlier, an analysis of the island's vehicle registry showed.
Sri Lanka's car registrations picked up in the last quarter of 2015 as credit recovered.
In August total car registrations fell to 8,860 units from an all-time high of 9,736 in July, though up from 2,361 units in August 2014, an analysis of Sri Lanka's vehicle registry data by JB Securities, a Colombo-based brokerage showed.
Motor cycle imports fell to 25,655 units in August from 33,722 units in July 2015 though still sharply up from 18,997 in August 2014.
Though hybrid car imports slowed after a tax hike in a January budget, small car imports soared, helped by a tax cut, while three wheeler and mobike imports also got on high gear, without a tax cut.
"The primary factor fuelling the demand for vehicles is credit – once the gold bubble burst vehicles was the only remaining collateral based lending available for financial institutions..," JB Securities said in a note to clients.
Demand "skyrocketed" when some of the larger banks started giving loans at 9 to 10 percent, the note said.
A 10,000 rupee salary hike to state workers also raised income, pushing up consumption, JB Securities said.
Analysts who warned that the authorities were driving the country in to a balance of payments crisis also used car imports as a 'leading indicator' to urge tighter monetary policy.
However in June outright money printing had begun.
Hybrid car imports which picked up to 4,320 units in January 2015, were down to 3,813 units in August after a tax hike.
Small cars however picked up sharply driven by both credit and a tax cut.
However Sri Lanka's best selling car, the Maruti-Suzuki Alto, is hardly seen in Colombo roads. They are entry level cars mostly bought by people who own motorcycles and are only used on weekends.
Traffic snarls in Colombo on the other hand are caused by hybrid vehicles, which are owned by more affluent people and executives who get travel allowances. Their running costs are also about half that of conventional vehicles - which are taxed at higher rates - encouraging their use.
Observers say electric cars, which are taxed the lowest also have a presence in Colombo disproportionate to their population, indicating higher mileage compared to Altos.
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