Sri Lanka Monetary Policy Review – June 2017 - Policy rates Unchanged

Monetary Policy Review: No. 4 – 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. 

According to the provisional estimates of the Department of Census and Statistics (DCS), the Sri Lankan economy has grown by 3.8 per cent (year-on-year) in the first quarter of 2017. Growth in the first quarter was weighed down by the impact of unfavourable weather conditions, particularly on agriculture related activities. The performance of industry related activities was largely driven by the continued expansion in construction, while services related activities recorded a moderate growth. The economy is expected to recover during the second half of the year. 

Following the increasing trend in the first quarter of 2017, year-on-year headline inflation, based on both Colombo Consumer Price Index (CCPI, 2013=100) and National Consumer Price Index (NCPI, 2013=100), moderated during the months of April and May, as envisaged. Core inflation has also displayed a similar trend. As the impact of the revisions to the tax structure and weather-related supply disruptions is expected to dissipate in the period ahead, inflation is projected to moderate to mid-single digits by the end of 2017, and stabilise thereafter.

Monetary expansion remained at elevated levels by end April 2017, driven by the expansion in domestic credit channelled to both the public and private sectors from the banking system. The growth of credit to the private sector continued to decelerate gradually. A further deceleration in the growth of credit to the private sector is anticipated, given the prevailing high nominal and real lending rates in the market. The recent expansion in credit obtained by state owned business enterprises (SOBEs) poses a risk to the behaviour of overall domestic credit, reflecting the need to address concerns in relation to the financial performance of key SOBEs. Meanwhile, a decline in net credit obtained by the government (NCG) was observed in the month of April 2017. The continuation of the government’s revenue based fiscal consolidation process and inflows to the government on account of foreign borrowings appear to have reduced the pressure on interest rates in the government securities market substantially. 

Despite improved export performance in March and April 2017, a sustained increase in import expenditure resulted in a wider cumulative trade deficit. Tourism related foreign exchange inflows grew on a cumulative basis, and the decline in tourist arrivals observed in the month of May 2017 is expected to be temporary. Workers’ remittances recorded a slowdown in the first four months of the year, and any further escalation of geopolitical tensions in the Middle East could adversely affect such inflows in the period ahead. A net foreign inflow was observed in the government securities market since March 2017, while inflows to the Colombo Stock Exchange (CSE) also displayed a positive trend. The Central Bank continued to absorb foreign exchange from the domestic market since March 2017 to build up international reserves. In line with these developments and the successful issuance of the International Sovereign Bond as well as the receipt of syndicated loan proceeds by the government, gross official reserves improved to above US dollars 7.0 billion by mid-June 2017. Meanwhile, the Sri Lankan rupee has depreciated against the US dollar by 2.3 per cent during 2017 up to 21 June. 

Against this backdrop, the Monetary Board decided to maintain the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 7.25 per cent and 8.75 per cent, respectively.

Sri Lankan shares slip from 17-mth high ahead of cbank rate review

Reuters: Sri Lankan shares fell on Thursday in low turnover, retreating from a 17-month closing high, as investors awaited the central bank's monetary policy review.

The central bank is expected to keep its key policy rates steady at more than three-year highs, a Reuters poll showed. The policy announcement is due on Friday at 0200 GMT.

Investors are worried of a possible rate hike, said Jaliya Wijeratne, CEO, First Capital Equities (Pvt) Ltd.

"Only a few counters traded today. Buyers want top blue chip John Keells Holdings, but sellers were not ready to sell at the price buyers wanted."

Keells, outperforming the overall index, ended 0.7 percent firmer.

The Colombo stock index fell 0.3 percent to 6,714.73, slipping from its highest close since Jan. 7, 2016 hit in the previous session.

Turnover was 495.5 million rupees ($3.2 million), about half of this year's daily average of 905.7 million rupees.

Foreign investors sold a net 14.6 million rupees ($95,362) worth of shares on Thursday, but they have been net buyers of 20.86 billion rupees of equities so far this year.

Shares of Ceylinco Insurance Plc lost 6.7 percent, while Hemas Holdings Plc ended 2.3 percent weaker, and BRAC Lanka Finance Plc fell 15.5 percent. 

($1 = 153.1000 Sri Lankan rupees) 

(Reporting by Shihar Aneez and Ranga Sirilal; Editing by Amrutha Gayathri)

Sri Lankan shares close at 17-mth high ahead of cbank review

Reuters: Sri Lankan shares rose on Wednesday to a 17-month closing high, on gains in financials and food and beverage stocks, ahead of the central bank's policy review later in the week where interest rates are expected to be held steady.

The Colombo stock index gained 0.38 percent at 6,731.25, its highest close since Jan. 7, 2016.

Foreign investors bought a net 259.1 million rupees ($1.7 million) worth of shares on Wednesday, extending the year-to-date net foreign inflow to 20.88 billion rupees in equities.

Turnover was 903.2 million rupees ($5.9 million), compared with this year's daily average of 909.3 million rupees.

"We are getting into a bullish territory again after a slowdown," said Dimantha Mathew, head of research, First Capital Holdings PLC.

"Investors do not expect a rate hike this month and they wait for the policy rate announcement. The overall market is bullish with the hope of no rate hike."

The central bank is expected to keep its key policy rates steady on Friday, a Reuters poll showed.

Shares of conglomerate John Keells Holdings Plc rose 1.2 percent, while Hatton National Bank Plc ended 1.2 percent higher. 

($1 = 153.2000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Amrutha Gayathri)

Sri Lankan shares edge up, led by banks

Reuters: Sri Lankan shares rose on Tuesday as investors picked up banking and diversified stocks, but foreign investors turned net sellers after two days of buying.

The Colombo stock index ended 0.32 percent firmer at 6,705.45, with foreign investors selling a net 120.7 million rupees worth of shares. They have bought 20.7 billion rupees worth equities so far this year.

Turnover was 1.01 billion rupees ($6.59 million), more than this year's daily average of 909.3 million rupees.

"The market is slightly positive, but there was a dampener after a buying spree in top counters," said Prashan Fernando, CEO at Acuity Stockbrokers.

Shares of Hemas Holdings Plc rose 3.2 percent, while the country's biggest listed lender, Commercial Bank of Ceylon Plc, ended 1.4 percent higher.

Sri Lanka Telecom Plc climbed 2.2 percent, while Ceylon Tobacco Company Plc rose 0.9 percent. 

($1 = 153.1500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Sri Lankan shares hit near 1-wk closing low; Keells down 3 pct

Reuters: Sri Lankan shares hit a near one-week closing low in tepid trade on Monday, as selling in diversified and banking shares offset foreign inflow into equities.

The Colombo stock index ended down 0.52 percent at 6,684.02, its weakest since June 14.

Foreign investors net bought 26.7 million rupees ($174,396) worth of shares, extending the year-to-date net foreign inflow to 20.74 billion rupees.

Turnover was 846.3 million rupees ($5.53 million), less than this year's daily average of 899.4 million rupees.

"Market came down on selling in Keells," said Dimantha Mathew, head of research, First Capital Holdings PLC.

Shares of conglomerate John Keells Holdings Plc fell 3.03 percent, while the country's biggest listed lender, Commercial Bank of Ceylon Plc, ended 1.43 percent lower.

"Investors are (also) worried about growth numbers," he said.

Sri Lanka's economy grew 3.8 percent in the first quarter, slowing from the previous quarter's 5.3 percent, the state-run Census and Statistics Department said last week.

($1 = 153.1000 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Biju Dwarakanath)

Sri Lankan shares gain for 3rd day to hit near 4-wk closing high

Reuters: Sri Lankan shares rose on Friday for the third straight session to hit a near four-week closing high as investors picked up blue chip stocks.

The Colombo stock index ended 0.36 percent higher at 6,718.83, its highest close since May 22, and recorded its first weekly gain in four.

Analysts said investor reaction to slower economic growth in the first quarter was mixed.

Sri Lanka's economy grew 3.8 percent in the first quarter, slowing from the previous quarter's 5.3 percent, the state-run Census and Statistics Department said on Thursday.

"The first-half growth will be affected by the drought and the floods, but we expect a pick up in the second half," said Atchuthan Srirangan, a senior research analyst at First Capital Holdings PLC.

"But slower growth this year will cause a higher loan-to-GDP ratio, which is a concern."

Turnover on Friday was 966.4 million rupees ($6.3 million), above this year's daily average of 899.4 million rupees.

Foreign investors were net buyers of 63.3 million rupees worth of shares, extending the year-to-date net foreign inflow to 20.71 billion rupees.

Inflation could rise in the short term, especially due to crop damage and difficulties in distributing fresh-food produce and staple food items, analysts said, after the recent floods and landslides, caused by the worst torrential rains in 14 years.

Shares in Hemas Holdings Plc ended up 4.2 percent, while Ceylon Tobacco Company Plc rose 1.2 percent. 

($1 = 152.9500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Amrutha Gayathri)

Sri Lankan shares hit 3-wk high as blue chips gain

Reuters: Sri Lankan shares rose on Thursday to hit a near three-week closing high as heavyweights John Keells Holdings Plc and Commercial Bank of Ceylon Plc gained.

The Colombo stock index ended 0.4 percent higher at 6,694.64, its highest close since May 26.

"We see encouraging signs with increased foreign participation," said Hussain Gani, deputy CEO of Softlogic Stockbrokers. "The local investors are also returning to the market resulting in healthy turnover level."

Foreign investors accounted for about 50 percent of the day's turnover of 1.88 billion rupees ($12.3 million), more than double this year's daily average of 899.4 million rupees.

Foreign investors, however, were net sellers of 55.6 million rupees worth of shares, snapping nine straight sessions of net buying. But they have been net buyers of 20.68 billion rupees worth of equities so far this year.

Sri Lanka's economy grew 3.8 percent in the first quarter, slowing down from the previous quarter's 5.3 percent, the state-run Census and Statistics Department said on Thursday after the markets closed.

Analysts said investors are still waiting to see the impact of the recent floods and landslides, caused by the worst torrential rains in 14 years, killing over 200 people and devastating crops.

Inflation could rise in the short term, especially due to crop damage and difficulties in distributing fresh food produce and staple food items, analysts said.

Conglomerate John Keells rose 1.8 percent, while the country's biggest listed lender, Commercial Bank of Ceylon Plc , and Sri Lanka Telecom Plc gained 2.7 percent and 2.9 percent, respectively. 

($1 = 152.6500 Sri Lankan rupees) 

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Amrutha Gayathri)