Monetary Policy Review – April 2016 - Policy rates unchanged

Headline inflation, as measured by the Colombo Consumers’ Price Index (CCPI, 2006/2007=100), declined to 2.0 per cent on a year-on-year basis in March 2016 from 2.7 per cent in February 2016, mainly due to the decline in food inflation. On an annual average basis, CCPI based headline inflation edged up to 1.1 per cent in March 2016 from 0.9 per cent in the previous month. Year-on-year headline inflation, based on the National Consumer Price Index (NCPI, 2013=100), was 2.2 per cent in March 2016 compared to 1.7 per cent in the previous month, and was 2.4 per cent on an annual average basis. Meanwhile, the CCPI based core inflation, which reflects underlying demand pressures in the economy, declined to 4.5 per cent in March 2016 from 5.7 per cent in the previous month, on a year-on-year basis. 

In the monetary sector, broad money (M2b) recorded a year-on-year growth of 19.8 per cent in February 2016, compared to 19.1 per cent in the previous month, driven by the expansion in domestic credit aggregates. Credit granted to the private sector by commercial banks, which is the largest category of domestic credit, increased by 26.5 per cent in February 2016, on a year-on-year basis, compared to 25.7 per cent in January 2016, while in absolute terms, credit granted to the private sector grew by Rs. 53.7 billion during the month of February 2016. Meanwhile, market interest rates have risen reflecting the tight monetary conditions in the economy. Going forward, a gradual slowdown in money and credit expansion is expected in the period ahead, as the recent monetary policy measures are expected to have an impact on the economy with some time lag.

In the external sector, the decline in expenditure on imports in February 2016 has been greater than the decline in earnings from exports, thereby narrowing the deficit in the trade account by 11.7 per cent, year-on-year. Earnings from tourism are estimated to have increased by 22.8 per cent in March 2016, while workers’ remittances recorded a healthy increase of 8.3 per cent in February 2016. Gross official reserves are estimated to have stood at US dollars 6.2 billion by end March 2016 compared to US dollars 6.6 billion at end February 2016, and the Sri Lanka rupee remained broadly unchanged against the US dollar thus far during 2016. 

Considering the fact that the Central Bank has already adopted measures to tighten monetary policy by raising the Statutory Reserve Ratio (SRR) and policy interest rates, and that the impact of these measures is yet to be reflected in monetary conditions in full, the Monetary Board, at its meeting held on 26 April 2016, was of the view that the current monetary policy stance is appropriate and decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank unchanged at 6.50 per cent and 8.00 per cent, respectively.

Sri Lanka shares up from near two-week low ahead of cenbank policy

Reuters: Sri Lankan shares edged up on Tuesday from its near two-week low hit in the previous session, as investors turned cautious, ahead of an imminent loan deal with the International Monetary Fund, and while awaiting cues from the central bank on interest rates.

The central bank's April monetary policy announcement is scheduled for later on Tuesday, and expectations are that the bank would keep key interest rates steady, a Reuters poll showed.

However, a surprise hike is not ruled out as five of 11 analysts expect the central bank to raise the policy rate and keep government borrowing in check through tighter financing conditions.

The central bank has tightened rates twice since December to ease the pressure on a fragile rupee.

The benchmark stock index ended up 0.4 percent, or 25.76 points, at 6,405.29.

"A sudden retail buying which came in the latter part of the day put some upward pressure on the market. We do not think it can sustain with the high interest rates and also the poor economic conditions," said Dimantha Mathew, head of research, First Capital Equities (Pvt) Ltd.

A visiting IMF mission said it expected to complete negotiations with Sri Lanka for a three-year loan programme in the next two weeks.

Foreign investors were net buyers of 96.8 million Sri Lankan rupees ($665,063.55) worth of equities on Tuesday, but have been net sellers of 2.95 billion rupees so far this year.

Turnover stood at 540.7 million rupees, less than this year's daily average of around 776.3 million rupees.

Shares in conglomerate John Keells Holdings Plc rose 1.84 percent.

($1 = 145.5500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Sherry Jacob-Phillips)

Paranthan Factory reconstruction starts this year with Rs525Mn

(LBO) – A now defunct Lankan chemical pioneer is to be revived and construction work shall start before the end of this year to revive the historic manufacturing giant, a minister said.

“We have earmarked Rs 525 Mn to start work on the Paranthan Chemicals Factory in Kilinochchi, The construction work will begin before the end of this year,” said Industry and Commerce Minister Rishad Bathiudeen.

Minister made the announcement on 24 April while he was on a visit to a patch of 217 acre landmass in Kilinochchi where the former Paranthan Chemicals Factory was located before it was destroyed in 1985.

“With the recommencement of these factories we can produce our total Chlorine requirements domestically and save valuable foreign exchange of around $ 900000 per year that we spend to import Chlorine.”

Once recommenced, Paranthan factory can take its required salt from Elephant Pass saltern.

“We are also planning to upgrade Elephant Pass saltern so that we will become self-sufficient in domestic and industrial salt supplies.” said Minister Bathiudeen.

Former Paranthan Chemicals Factory that functioned under the state owned Paranthan Chemical Co, was established in 1954 as Government Chemicals Factory at Paranthan in Kilinochchi District.

It manufactured Caustic Soda using salt as the key raw material and was re-named as Paranthan Chemicals Corporation in 1957 by the State Industrial Corporation Act No 49 of 1957.

The factory was destroyed due to terrorism that began in 1983, and as a result, by 1985, Caustic Soda and Chlorine had to be imported for local soap, paper, textiles and manufacturing.

At present, Paranthan Chemical Co imports liquid Chorine in 900 Kg cylinders and refill in to 68Kg cylinders at its refilling units in Horana and Kaluthara.

It can supply the entire chlorine required by the Water Supply and Drainage Board and private sector industries. Paranthan Chemical Co is a profit making state firm that reported more than Rs 150 Mn profits in 2015.

Chevron goes for sub-division

The Board of Directors of Chevron Lubricants Lanka has resolved to increase the number of shares by way of a sub-division of each existing ordinary share (1) to two (2) ordinary shares.

At the conclusion of the proposed sub division, the number of shares currently in issue will increase from 120,000,000 shares to 240,000,000 shares. There will be no change to the stated capital of the company.The increase of shares by way of a sub division is subject to shareholder approval at a General Meeting.
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