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Sri Lanka inflation accelerate to 6.5% in January 2010 

Jan 28, 2010 (LBO) – Inflation in Sri Lanka’s capital Colombo accelerated to 6.5 percent in January 2010 from a year earlier, up from 4.8 percent December while prices increased 1.4 percent during the month, the government’s statistics office said.
Sri Lanka’s Colombo consumer price index (CCPI) has been rising steadily after April 2009 when prices stopped falling. From May 2009 to January 2010 the index climbed from 201 points to 216.4 points, which is an increase of 7.6 percent.
The seasonal average of the index, which is a lagging indicator over two years fell to 3.1 percent in January from 3.1 percent in December.
Sri Lanka’s central bank has been withdrawing liquidity from the market from the second half of 2009 but high levels of liquidity running into 20 to 30 billion rupees a day has remained in the market.
Analysts say the Central Bank should tighten monetary policy and stop intervening in the primary market for government Treasury bills, which is similar to ‘quantity easing’.
On Tuesday the Central Bank, which runs the government’s debt office said it had only 8.2 billion rupees out of 11.0 billion rupees of maturing Treasury bills to market participants. The central bank can ‘print’ money by buying bills in the primary market.
Primary market interventions can ignite inflation and also put pressure on the currency peg even if interest rates are high. Sri Lanka has a peg to the US dollar.
(LBO, 28-Jan-2010)

Sri Lankan stocks close 1.2% higher 

Jan 28, 2010 (LBO) – Sri Lanka stocks recovered early losses Thursday to end the day 1.25 percent higher in the first day of trading after President Mahinda Rajapaksa was returned to a second term, brokers said.
The benchmark All Share Price Index (ASPI) closed at 3,636.41 points, up 45.03 points, while the Milanka index of more liquid stocks gained 1.38 percent (56.84 points).
Turnover was at 1.92 billion rupees.
“Early morning retailer selling pressure was absorbed by state-backed funds and then others followed,” an analyst said.
“It has to be seen whether if this sentiment would continue during next week.”
Sri Lanka’s stocks have been driven up largely by domestic small investor buying in recent weeks, with foreign investors being on the sell side.
From January 20 to January 26 foreign were net sellers by 1.07 billion rupees.
Fund manager Mark Mobius, from US based Templeton Asset Management has said that the market has to drop at least 15 percent to make it attractive for him.
“It’s positive to hear that the incumbent will be re- elected because it adds some degree of stability,” Mobius, was quoted as saying in Bloomberg newswires.
“We’re not rushing in” to the stock market on the back of the result, Mobius said. “There’s a lot to be done.”
He said Sri Lanka’s infrastructure needs to be fixed and political settlement reached with the Tamil community.
Central Bank governor Nivard Cabraal said the government’s hand had been strengthened buy the vote and the administration would move towards fiscal consolidation.
(LBO, 28-Jan-2010)

Sri Lanka policy certainty higher after polls: CB Governor
Jan 28, 2010 (LBO) – Sri Lanka’s policy direction is clearer after a President Rajapaksa was returned to power with a bigger majority allowing investors to emerge from any ‘wait and see’ attitude, a top official said.
“The mandate means we have a clear path chartered for the next six years,” Central Bank governor Nivard Cabraal said.
“We have eliminated the war. We have obtained a mandate from the people. We have put forward a plan of action in the Mahinda Chinthana (Rajapaksa’s platform).”
Though parliamentary elections are due before April 2010, Cabraal said the policy path is already set.
“The presidential elections has made certain of the outcome of the parliamentary elections,” Cabraal said.
“There is no need to wait and see. Investors could set their plans in motion, notwithstanding the elections.”
Cabraal said the government was committed to a fiscal consolidation of bringing down the budget deficit. For 2009 the government set a 7.0 percent target and 6.6 percent for 2010.
The mandate would strengthen the government’s hand to act on the basis of a report of a taxation commission that is being prepared.
“We have committed ourselves to a certain consolidation path,” he said. “We are not digressing. We are looking forward to the taxation commission.”
Cabraal said following the report from the taxation commission a changes will be made to taxes on a pre-determined path.
“There will be a cohesive plan,” he said. “We want to give some certainty to economic agents to act.”
(LBO, 28-Jan-2010)

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