Monetary Policy Review – December 2009 Current Account to Record a Surplus in 2009 for the First Time since 1977
Inflationary pressures continue to remain subdued as reflected by the annual average inflation of around 4 per cent recorded by end November 2009, although year-on-year inflation increased to 2.8 per cent. The outlook for inflation remains benign. The development of the Northern and Eastern provinces in the period ahead would result in their increased integration with the rest of the country, leading to enhanced supply of goods and services in the country. The positive supply side developments expected to take place in the domestic economy are likely to have a favourable impact on inflation, going forward. The higher reduction in expenditure on imports compared to the decline in earnings from exports has resulted in the trade deficit narrowing significantly during the first nine months of 2009. The overall deficits in the trade and income accounts were offset by higher inflows into the current transfers and services accounts, resulting in a surplus of US dollars 393 million in the current account for the first nine months of 2009. It is expected that this performance will continue through the fourth quarter as well and the current account would record a surplus in 2009 for the first time since 1977.
Prospects for domestic economic activity have improved with the more favourable investment climate that now prevails and the gradual recovery of the world economy, supported by the relaxed monetary policy stance of the Central Bank. Hence, it is expected that credit flows
will gradually pick up, with the more favourable credit conditions that prevail on account of the decline in market interest rates as well as the more stable conditions in financial markets. Although broad money supply is likely to further expand, particularly in view of the expansion of foreign assets of the country and the likely pick up in credit flows to the private sector in the ensuing period, such an expansion has been accounted for in stipulating the monetary targets for this year as well as the next year.
Considering these developments the Monetary Board at its meeting on 11 December 2009 decided to maintain its policy interest rates at their current levels. Accordingly, the Repurchase rate and the Reverse Repurchase rate would remain at 7.50 per cent and 9.75 per cent, respectively.
The Road Map: Monetary and Financial Sector Policies for 2010 and beyond, to be announced on 4 January 2010, will enunciate the monetary policy strategy of the Bank for 2010. The release of the next regular statement on monetary policy will be on 19 January 2010.
Sri Lanka mineral sands eyed by Indian state firms: report
Dec 13, 2009 (LBO) – India is looking to buy more rutile and ilmenite mineral sands from Sri Lanka, a media report said quoting Kerala state industries minister Elamaran Kareem.
Sri Lanka’s The Sunday Times newspaper in a Kerala dateline report said two state-run firms Kerala Minerals and Metals Ltd and Travancore Titanium Products Ltd was looking to import more mineral sands from Sri Lanka.
The newspaper report said there was not enough ilmenite to feed the full capacity of the Titanium plant.
Ilemenite and rutile is used to produce Titanium metal used in the aerospace industry, and Titanium dioxide pigment, used in paints.
In 2008, China was the biggest buyer of Sri Lankan mineral sands, followed by India, according to data released by the island’s geological survey office.
Large mineral resources are found in the eastern coast of Sri Lanka, where a 30-year war ended this year. The sands are extracted by state-run Lanka Mineral Sands.
Sri Lanka banks told to slash interest on credit cards
Dec 11, 2009 (LBO) – Sri Lanka’s Central Bank has asked banks to sharply reduce interest rates charged on credit cards, saying they had enough room to do so as interest rates in general had fallen.
“Banks have been requested to reduce the interest rates levied on credit cards to at least a level between 24 percent and 36 percent,” the regulator said in a statement.
The Central Bank said it has observed “with concern” that interest rates charged by licensed banks on credit cards have remained unchanged in the range of 33 percent to 48 percent since December 2008.
“It is however noted that currently there is adequate leeway for the banks to reduce such interest rates on credit cards since the interest rates structure has moved down due to the relaxation of the monetary policy.”
Banking sector officials have said the average interest charged by banks from the clients varies from 40 percent to 50 percent a year.
The Central Bank has sharply reduced its benchmark interest rates in recent months after keeping them high in an effort to rein in inflation,
which hit 28 percent in the middle of last year.
Inflation has now plunged to single digit levels.
The government has also told state banks to cut lending rates.
The Central Bank said in November that Treasury bill yields have fallen 947 to 950 basis points at primary auctions over the past year, helped by easier monetary policy, foreign investment into Treasuries and lower inflation.
But rates have edged up again at auctions in the last two weeks as fiscal policy loosened ahead of elections early next year and private sector credit started to expand