Sri Lankan Foreign Reserves improved to USD 7.1 billion in July 2020 relative to USD 6.7 billion in June 2020 amid the SWAP with India and import controls, First Capital’s ‘MONTHLY ECONOMIC WATCH’ said.
Liquidity remained positive and volatile throughout the month and recorded the highest surplus on July 2, amounting to Rs 173.3 billion.
In the month of July, the secondary bond market continued to witness buying interest led by the policy rate cut announced by the CBSL on July 9 and on the speculation of the election outcome in August 2020, resulting in a steep downward shift in yields mainly on the short to mid tenor maturities. T-bill yields declined for the first time below 5% on July 15, 2020 while setting a new record low. Short tenor yields dipped in the range of 3-35bps, mid tenors dipped by 2-27bps, in addition, long tenor yields fell by 5-12bps. Private sector credit decreased by Rs 54 bn in Jun 2020, for the second consecutive month while state credit reflected a net borrowing of Rs 133 bn with cumulative state credit amounting Rs 928 bn for the year of 2020.
Meanwhile the YoY inflation of CCPI is 4.2% in July relative to 3.9% in June while the increase is as a result of the increase in Food items by 10.9%. Non-Food inflation increased marginally to 1.5%YoY in Jul 2020.
Exports for June recorded a decline of 17.5%YoY to USD 894.1mn mainly led by Industrial exports (-24.5%YoY). However, agricultural exports increased by 12.0%YoY. Earnings from textiles and garments contributed the most to the decline in Jun 2020, on a YoY basis, despite the increase in earnings from personal protective equipment.
Import expenses for June declined to record at USD 1,055.5 Mn (-24.6%YoY) led by the decline in all major import sectors, with intermediate (-33.0%YoY) and investment goods (-19.4%YoY) imports declining the most.
In consideration of the current and expected macroeconomic developments, the CBSL Monetary Board, was of the view that the current accommodative monetary policy stance is appropriate particularly as market lending rates are yet to reflect the full pass through of policy easing measures implemented thus far and decided to maintain the SDFR and the SLFR of the Central Bank at their current levels of 4.50% and 5.50% respectively.
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