Market Interest Rates Declined Further
In line with the gradual easing of the monetary policy stance by the Central Bank, interest rates have been on a declining trend since the beginning
of this year. This was bolstered by improved market confidence and investor sentiment with the ending of the conflict, which resulted in
an inflow of foreign investment to government securities. This trend was underscored by the new developments in relation to the financing
facility by the IMF.
Accordingly, yield rates on Treasury bills declined sharply at the Treasury bill auction held on 22 July 2009 reflecting market confidence and
positive sentiment. The yield rate on Treasury bills with a maturity of 91 days declined by 26 basis points to 10.79 per cent, the lowest since
early October 2006. This trend was reflected in the yield rates of Treasury bills with the maturities of 182 days and 364 days. A similar trend was observed in the yield rates of Treasury bonds in the secondary market as well. The total reduction in Treasury bills thus far during the year is in the range of 654 – 699 basis points.
The average weighted call money rate has also continued to be within the policy rate corridor at a single digit level benefiting from a healthy liquidity position maintained in the market. The present levels of call money rates are the lowest observed since the first quarter of 2006.
Government investments increase
Ministry of Finance said the Government investments increased upto 85 billion rupees during the 1st quarter of the year. It is a 14 percent increase when compared to the same period of the previous year.
The Government has given priority in investing funds on programmes like Gama Neguma, Maga neguma and Uturu Wasanthaya etc., Under the Maga Neguma programme 682 kilo meters of roads have been developed during the period .
A considerable amount has been spent on increasing infrastructure facilities as well. According to the ministry over 32 thousand families have been benefited by these programmes.
Sri Lanka may get US$300mn from new ADB fund: report
July 23, 2009 (LBO) – Sri Lanka may get a 300 million US dollar loan from Asian Development Bank new facility to help stimulate slumping economies in the region, a media report said.
A 30-year internal conflict ended after the military wiped out Tamil Tiger separatists in May.
“Sri Lanka is in an extremely favorable situation and the overall confidence of the international community is much higher,” Narhari Rao, ADB’s South Asia lead economist was quoted as saying by Bloomberg newswires.
“We are trying to push ahead on various fronts since we feel it’s just the right time to give resources to Sri Lanka.”
Bloomberg said ADB’s board may approve 300 million US dollar loan from its newly set up quick disbursement, counter-cyclical support facility(CSF).
Sri Lanka has clinched a 2.5 billion US dollar deal from the International Monetary Fund to boost the balance sheet of the country’s central bank which was hit by an episode of peg defence till a float rescued it in March.
The first tranche of 312 million dollars is expected on Friday after IMF’s executive board approves it. But IMF funding helps the American budget deficit rather than Sri Lanka’s as the proceeds are usually invested in US treasuries.
But the country also needs money to fill gaps in its budget, which widened after revenues fell in nominal terms amid a steep economic downturn.
Floating exchange rate countries can loosen monetary policy (print money) to ‘stimulate’ an economy, at the risk of some inflation, especially when their banking systems are damaged.
But past experience has shown that a country like Sri Lanka which has a de facto dollar peg suffers balance of payments troubles, or very high inflation as soon was significant volumes of money is printed.
An injection of foreign money is the only way to ‘stimulate’ a small open economy like Sri Lanka without severely hurting the poorer sections of society.
The CSF was announced in May to help countries hit by a global economic slump. Rao said ADB was looking to raise its annual financing to Sri Lanka from about 200 million US dollar to 300 million and a 20 million dollar facility to support public private partnerships was also being planned.