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Monthly Economic Update - February 2019


EIU - February 2019


  • CBSL cuts SRR by 1% to ease tight liquidity conditions; similar reasoning was cited for the 1.5% SRR cut in November 2018
  • LKR appreciates close to 2% so far in 2019; debt repayment sees sharp fall in reserves during January 2019.
  • Leading global quarterly merchandise trade indicator slumped to its lowest reading in nine-years in the first quarter of 2019 on concern over trade tensions

 Sri Lankan Economy  

LKR has strengthened so far in 2019: The LKR has recorded an appreciation close to 2% during the period from 1st January to 25th February 2019, underpinned by net inflows to the government securities market and slowdown in import expenditure. In 2018, the currency depreciated over 19% against the US dollar.

Sri Lanka to Grow 3.5% in 2019- WB: The recently released Sri Lanka Development Update 2019 of the World Bank says the expected growth of the country during 2019 will be 3.5%. However, the World Bank warned the country will face stiff headwinds from high debt repayments, a challenging global environment and possible political instability due to elections.

CBSL Cuts SRR to Help Ease Liquidity Shortages: At its first meeting for 2019, the Monetary Board of the Central Bank of Sri Lanka (CBSL) decided to reduce the Statutory Reserve Ratio (SRR) by 1 percentage point to 5%. The CBSL expects this move to ease the tight liquidity conditions in the domestic money market. In November 2018, the CBSL cut the SRR by 1.5% with a similar intention of reducing the liquidity deficit.

Private Sector Credit Expanded in 2018: Private sector credit expanded more than expected by the CBSL in spite of a marginal deceleration in December 2018 (15.2% on a Y-o-Y basis). During the Q4 of 2018 credit to all the sectors increased compared to Q3, except for the Industrial sector.

Reserves Decline in January: Sri Lanka’s dollar reserves fell to USD 6.1 Bn in January 2019, a decline of more than USD 800 Mn compared to December 2018. The fall was due to the CBSL using the reserves to repay the USD 1 Bn Sovereign bond that matured on 14 January 2019.

FATF to conduct onsite assessment in May: The Financial Action Task Force (FATF) will visit Sri Lanka in May to assess the anti-money laundering progress made by the government in removing the current status of being classified in the ‘Grey List’. 

IMF EFF 5th Programme Review Mission: A delegation from the IMF has been in Colombo to discuss on the resumption of the current Extended Fund Facility program which was suspended last year following the political instability which took place in October.

 Global Economy 

Crude Oil Prices Rise in January: The OPEC Reference Basket rebounded in January, gaining more than 3% to average USD 58.74 per barrel. Crude oil prices improved over the month, buoyed by robust market fundamentals with signs of tightening crude supply as well as firm crude oil demand, particularly from Asia-Pacific.

Trade Indicator hits nine-year low: The most recent World Trade Outlook Indicator of the WTO recorded its weakest reading since March 2010 with the index falling below the baseline value of 100. Weakness in the overall index was driven by steep declines in the component indices which appear to be under pressure from heightened trade tensions. A broader economic slowdown could be expected if trade tensions persist.

U.S Extends Tariff Hike Deadline on China: The U.S. will delay an increase in tariffs that was scheduled for 1 March citing that trade talks with China had showed substantial progresses.  

UK releases the ‘NO DEAL’ Guidance: The UK Department of International Trade has recently released a guidance note on post-Brexit trade agreements and trade arrangements in a ‘No deal’ scenario.

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The Ceylon Chamber of Commerce

Economic Intelligence Unit

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