The resurgence of COVID-19 infections and the accompanying restrictions could be a setback for the nascent economic recovery, First Capital Report said.
“The near-term GDP outlook for the Sri Lankan economy is clouded with accentuation of downside risks and potential externalities of global spillovers. These downside risks include the resurgence of possible multiple waves of the pandemic, slower than expected pace of vaccination, drop in consumer confidence, low-capacity utilization which can impede the recovery in private investment.
Yields in the secondary market witnessed an increase with moderate market activity from participants followed by a wait and see approach amidst the looming uncertainty. The last 17 Bill auctions were undersubscribed by a considerable amount reflecting the lack of clarity among market participants with the current economic condition. We consider that a rate hike would be required for CBSL to raise funding via Government.
Despite the import restrictions imports have been in the rising trend expanding Sri Lanka’s trade deficit. In Mar 2021 imports were at a 3 year high with April following a similar suit, in spite of the prevailing import restrictions. Despite the import restriction, USD:LKR has plunged by 7.8%YTD to Rs. 200.78.
The low interest rate environment is gradually fueling consumer demand influencing the spike in imports. The rising interest rate may gradually ease the pressure on the exchange rate.
0 comments: