SL cuts key policy rates, narrows the corridor
The Monetary Board, at its meeting held on 17 November 2009, has decided to reduce the Repurchase rate by 50 basis points and the Reverse Repurchase rate by 75 basis points with immediate effect. Accordingly, the Repurchase rate and the Reverse Repurchase rate of the Central Bank would be 7.50 per cent and 9.75 per cent, respectively.
Inflation, as measured by the year-on-year change in the Colombo Consumers’ Price Index (base=2002), has remained around 1 per cent thus far during the second half of the year. According to current projections, although inflation is expected to rise moderately in 2010 due to the gradual decline of the base effect of low inflation in 2009, it is expected to remain relatively subdued.
Benign inflation has enabled the Central Bank to gradually relax its monetary policy stance on several occasions in order to support economic activity. Accordingly in 2009, the Central Bank lowered its policy interest rates in several steps, abolished the penal rate as well as lifted the restrictions on access to repurchase and reverse repurchase standing facilities. Market interest rates have declined in response to these measures, albeit with a time lag. Benchmark yield rates on Treasury bills of all maturities have declined by 960-969 basis points, with 91-day, 182- day and 364-day maturities declining to 7.73 per cent, 8.80 per cent and 9.56 per cent, respectively at the auction held on 11 November 2009.
Commercial bank lending rates have also started to decline sharply with the reduction of interest rates by the state banks.
At the same time, the significant absorption of foreign exchange by the Central Bank has led to a high level of excess rupee liquidity in the domestic market. With the retirement of a significant proportion of the Central Bank’s holdings of government securities in August 2009, the Central Bank has resorted to issuing Central Bank securities since October 2009 and foreign exchange SWAPs since November 2009 to absorb the excess rupee liquidity in the domestic market. Through these measures, the Central Bank will continue to manage the excess liquidity situation in the domestic market and take appropriate measures to reduce the level of excess liquidity to a more desirable level.
Sri Lanka tea crop lowest in 10 years
Nov 19, 2009 (LBO) – Sri Lanka’s tea production in October 2009 improved from that of the same month last year when the market had crashed but output in the 10-months is the lowest in 10 years, brokers said.
Production of black in October 2009 rose seven percent to 25.9 million kilos from a year ago with the gains coming from low grown teas made by small farmers in the south.
Production of tea in the high and medium grown elevations fell compared with the same month last year mainly because of bad weather, brokers Asia Siyaka Commodities said.
“Tea production for the 10-month period ending October 2009 at 234.7 million kilos is the lowest since 1999,” the brokers said.
High grown tea production is down 16 percent to 58.9 million kilos this year while medium grown tea output was down 15 percent to 36.2 million kilos in January-October 2009 compared with the same 2008 period.
Production of low grown teas, which make up the bulk of the crop, fell 13 percent to 139.6 million kilos in the 10 months to October 2009 from a year ago, a loss of 21 million kilos.
Asia Siyaka Commodities said the low grown market stabilized this week at the Colombo auctions following the decline in prices seen over the past few sales.
They said Sri Lanka’s fourth quarter total tea production this year should not be compared with the same period of 2008 as output then had fallen sharply when prices crashed with the bursting of the global commodities bubble.
“Conditions that prevailed in that year were far from normal,” the brokers said.
“The fourth quarter of 2008 will be remembered for the crisis in the tea industry when global prices crashed and producers could not afford to tend their fields and harvest their crop.”
Sri Lanka accelerates Chinese-financed coal plants
Nov 19, 2009 (LBO) – Sri Lanka will build two 300 MegaWatt coal power plants at the same time with Chinese financing and finish a 900MW facility in two phases instead of the originally planned three to cut the country’s high power costs.
Information minister Anura Yapa said Sri Lanka’s cabinet of ministers has given the nod for the government to borrow 891 million US dollars from China to finish a 900MW coal power complex in Puttalam, in the island’s West Coast.
The first phase of 300MW is scheduled to finish at the end of 2010.
In the first phase of a coal plant, a coal handling jetty, a transmission line from Puttalam’s Norochcholai area to Veyangoda and a grid substation is being built with a 455 million loan from China.
China’s Exim Bank has given 300 million US dollars as a ‘preferential buyer’s credit’ and 155 million US dollars as a ‘buyer’s credit’.
The second and third phases have been telescoped into a single phase in view of “the urgency of developing coal power”, a cabinet note from the finance ministry said.
Sri Lanka has one of the highest power costs in the region due to heavy reliance on diesel plants as coal plants were opposed by environmental and religious activists.
Under the second phase a transmission line from Norochcholai to Anuradhapura, in north central Sri Lanka, would be built. New grid substations would be built in Anuradhapura and Chilaw in the west coast and coal handling port facilities expanded.
The 891 million dollar ‘preferential buyer’s credit’ would be repayable in 20 years with 5 year grace at 2.0 percent interest.
A management fee of 0.5 percent would be charged after 30 days after the loan agreement becomes effective, and a commitment fee of 0.5 percent will be charged on the unutilized portions.