Inflation in November 2009
The annual average inflation rate, as measured by the Colombo Consumer’s Price Index (CCPI) (2002=100), computed by the Department of Census and Statistics, decelerated further to 4.1 per cent in November, 2009 from 5.2 per cent in October 2009, for the thirteenth consecutive month since November 2008. However, on a point-to-point basis inflation increased to 2.8 per cent as anticipated, reflecting mainly the lower base in the corresponding month of 2008. Meanwhile, the core inflation, which measures the price movement of non-food and non-energy items of the CCPI basket, stabilized at the previous month’s level of 5.1 per cent on a point-to-point basis, while continuing its decreasing trend on an annual average basis for the sixth successive month.
The CCPI increased marginally by 0.8 per cent over the previous month, with the Index moving upward to 211.0 from 209.4 in October, 2009.
The contribution to the monthly increase in the Index arose mainly from sub category of Food and non-alcoholic beverages (1.4 per cent), primarily led by the price increases in vegetables, lime, onions, garlic and coconuts. However, price declines were registered for fish and sea food, eggs, fruits, dhal and sugar. Further, sub categories of Transport (0.2 per cent), Clothing and footwear (1.1 per cent), Miscellaneous goods and services (1.1 per cent) and Furnishing, household equipment and routine household maintenance (0.1 per cent) also contributed to the increase.
(CBSL, 02- Dec- 2009)
Sri Lanka rated telco market with highest regulatory risk
Sri Lanka has been rated the telecommunications market with the highest regulatory risk score in the Asia-Pacific region, according to a new survey by Fitch Ratings. It said Fitch’s Regulatory Risk Score provides an indication of how the regulatory environment impacts the ability of an operator to generate free cash flow (FCF). This in turn affects the rating process, as a credit rating is Fitch’s opinion about the future ability of a company to generate free cash flow to repay its debts. “Notably, Australia and Sri Lanka receive the highest risk score under the incumbent and second-entrant classifications, whereas Malaysia and Hong Kong (second-entrant) are assessed as having the lowest regulatory risk,” the report said. The incumbent operators typically score lower (implying a lower risk) than the corresponding second-entrants for each market, largely due to state ownership or a legacy regulatory bias which has resulted in a more favourable environment for the incumbents.
In the risk scores on a combined basis, when averaging the separate incumbent and second-entrant risk scores, “Sri Lanka markedly stands out as the market with the highest regulatory risk score, followed by Australia and South Korea,” Fitch said. “Political and social policy risks are notably high in Sri Lanka, and are therefore a major adverse rating factor for the Sri Lankan operators.” Markets in which Fitch believes there is a high degree of regulatory uncertainty include Indonesia and Sri Lanka. The Fitch report has assessed the telecom regulatory risk environment for 13 markets across Asia-Pacific and concluded that Sri Lanka, Australia and South Korea have the highest regulatory risk on a comparative
basis, whereas Malaysia has the lowest. “A high regulatory risk score of 6 or above denotes that the regulatory environment has a significantly negative impact on the operator’s ability to generate Free Cash Flow,”In contrast a low score below 3 denotes a potentially positive impact on FCF.”
Credit to private sector up 0.35 % in Sept, But still 5.2 % lower than in 2008
Growth in Credit to the private sector, contracting each month since December 2008, before declining in May, has picked up marginally in September over the previous month, latest data from the Central Bank shows. Credit to the private sector grew a marginal 0.35 percent from Rs. 1.17 trillion in August to Rs. 1.18 trillion in September, but was still 5.2 percent lower from September 2008.
In December last year, credit to the private sector had grown 7.9 percent year-on-year to Rs. 1.278 trillion in a year which had high interest rates as the Central Bank tightened its monetary policy stance in a bid to curtail credit expansion and reign in inflation, which had peaked to 28.2 percent in June 2008.
Since January 2009, year-on-year private sector credit growth contracted until May, when growth began to decline. Credit to the private sector declined 0.4 percent 1.223 trillion from Rs. 1.237 trillion in May 2008. Inflation began to decline gradually from the June 2008 peak of 28.2 percent reaching 0.7 percent in September this year allowing the Central Bank to cut monetary policy rates, reduce the statutory reserve ratio and lift other restrictions that prevented commercial banks from generating credit. Benchmark rates of Treasury bills and bonds also began to come down.
The Central Bank wanted low lending rates to stimulate economic activity but credit to the private sector continued to contract each month before picking up last September. Analysts and dealers said it was because commercial banks could not find quality borrowers to lend to and preferred to invest in government securities instead. Last October, the government then ordered state-owned banks to reduce their lending rates to a range between 8 percent and 12 percent to selected sectors of the economy. Private commercial banks too followed the trend although the rates were not matched. The lower rate of inflation which allowed Central Bank to loosen its tight monetary policy stance has since picked up, reaching 1.4 percent in October and 2.8 percent in November.
Some fear the Central Bank would soon have to tighten monetary policy and the private sector would again find credit hard to come by.
“Inflation is bad enough, but high inflation expectations are worse and need to be countered effectively,” a dealer said.
Inflation is expected to pick up throughout 2010 but the Central Bank is confident that it could be contained within single digit levels, leaving room for credit expansion. “Monetary policy in 2010 will continue to support economic activity, while containing inflationary pressure,” the
Central Bank said in its publication ‘Recent Economic Developments: Highlights of 2009 and Prospects for 2010’.
“The recovery in the global economy could result in higher commodity prices in the international market, thus exerting some upward pressure on domestic prices.
“In view of these upside risks, monetary policy would be conducted cautiously to ensure that inflation would remain around a desirable single digit level, well into the medium term,” the Central Bank said. Analysts point out, however, that inflationary pressure could intensify with government mooting to increase public sector wages next year which could increase the fiscal deficit, adding pressure to a 6.5 percent of GDP deficit target under the IMF standby facility programme.