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CB eases monetary conditions by reducing its interest rates

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The Monetary Board of the Central Bank has decided to reduce the Standing Deposit Facility Rate and the Standing Lending Facility Rate by 200 basis points to 11.00 percent and 12.00 percent respectively.The Central Bank said it took this decision at the monetary board meeting conducted on Wednesday.

The board arrived at this decision following a careful analysis of the current and expected developments, including the faster-than-envisaged disinflation process and benign inflation expectations in the domestic economy, with the aim of enabling the economy to reach its potential and stabilizing inflation at mid-single-digit levels in the medium term, while easing pressures in the financial markets, the Central Bank statement said.

The board expects that with this reduction of policy interest rates by 200 basis points, and the reduction of policy interest rates by 250 basis points in early June 2023, along with the significant reduction of risk premia on government securities witnessed recently, the market interest rates, particularly lending rates, will adjust downwards adequately and swiftly, said the central bank.

Therefore, the banking and financial sector is urged to pass on the benefits of this significant easing of monetary policy by the central bank to individuals and businesses, thereby supporting economic activity to rebound in the period, the statement said.

The CBSL said Colombo Consumer Price Index (CCPI) (2021=100) based headline inflation (year-on-year) decelerated further in June 2023 to 12.0 per cent, reflecting easing price pressures across many categories, including energy and food prices, along with the favourable base effect.

CCPI based food inflation (year-on-year) and core inflation (year-on-year), which reflects underlying inflation, moderated to single digit levels in June 2023, reinforcing the disinflation process. The full pass through of the appreciation of the Sri Lanka rupee against the US dollar thus far in 2023 is yet to be reflected in the price levels, a factor that could further support the disinflation process.

As per the latest projections of the Central Bank, headline inflation is expected to decelerate further and reach single digit levels by early Q3-2023 and stabilise around mid-single digit levels over the medium term, the CBSL said.

The ongoing disinflation process is supported by the lagged impact of tight monetary and fiscal policies, the expected softening of energy and food prices and their spillover effects, and possible repricing of goods and services due to exchange rate appreciation, alongside the favourable impact of the statistical base effect, CBSL said.

CBSL added that domestic economic activity is expected to recover gradually towards late 2023 and sustain the recovery, thereby helping to reach the potential level of economic growth over the medium term.

As per the GDP estimates published by the Department of Census and Statistics (DCS), the real economy contracted in Q1-2023, driven by a substantial contraction in Manufacturing and Services sectors. According to the leading indicators, economic activity is estimated to have remained subdued in Q2-2023 as well, reflecting the protracted impact of the economic distress in 2022 coupled with the tighter monetary and fiscal policies implemented to bring in greater macroeconomic stability.

However, the economy is projected to recover gradually towards late 2023, supported by policy normalisation led by the easing of monetary conditions, improvements in supply conditions supported by strengthened foreign exchange liquidity, the gradual relaxation of import restrictions, enhancement in business and investor sentiment, and the impact of policy measures and structural reforms being implemented to promote economic growth.

This recovery is expected to sustain, thereby gradually closing the large negative output gap that exists in the economy and reaching the potential level of economic growth over the medium term.



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Rs 1. 3 bn yahapalana building deal under investigation

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Jayasinghe building

Several ex-Cabinet ministers questioned; Ranil, Sajith, too likely to be summoned

The Commission to Investigate Allegations of Bribery or Corruption (CIABOC) has initiated an inquiry into the shifting of the Agriculture Ministry situated at Rajamalwatte, to a building belonging to the D. P. Jayasinghe Group of Companies, at Rajagiriya, during the Yahapalana government.

The building was rented for a five-year period at a cost of over Rs 1 bn by the yahapalana government within months after the then President Maithripala Sirisena declared opened the 10-storey building complex.

The CIABOC yesterday morning recorded former yahapalana minister Gayantha Karunatilleke’s statement in connection with the investigation. Later in the day, CIABOC recorded the statement of SJB General Secretary Ranjith Maddumabanadara. Earlier CIABOC summoned former ministers Thalatha Atukorale, Wajira Abeywardena and Lakshman Kiriella. At the time of the finalisation of the deal, KIriella was in the UNP.

Sources said that former PM and President Ranil Wickremesinghe, too, was likely to be questioned in this regard. Responding to The Island queries, sources pointed out even SJB leader Sajith Premadasa was expected to be questioned.

The then Speaker Karu Jayasuriya is on record as having said that the building was rented in keeping with a decision taken by the government and not Parliament.

The UNP-SLFP coalition shifted the Agriculture Ministry to accommodate 16 Sectoral Oversight Committees therein.

Although the government paid as much as Rs. 21.5 mn monthly rent to D.P.A. Jayasinghe Company, the Agriculture Ministry failed to move in for over a year. The then Agriculture Minister Duminda Dissanayake sought Cabinet approval on Dec 1, 2015 to rent the building.

According to inquiries conducted earlier by the Presidential Commission appointed to probe state sector corruption, the Agriculture Ministry sought Cabinet approval for a new building after the then Prime Minister Wickremesinghe submitted a cabinet proposal on 21 September, 2015, to use the Agriculture Ministry building for Parliament’s sectoral oversight committees.

PM Wickremesinghe’s Secretary Saman Ekanayake has told the Commission that public funds could have been saved if the several vacant floors of Suhurupaya belonging to the Defence Ministry had been made available to the Agriculture Ministry.

By Shamindra Ferdinando ✍️

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SL Railways suffers staggering losses; more than 2/3 of rail tracks out of service

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Army personnel engaged in repairing damaged railway tracks in the Boo Oya area. Cyclone Ditwah caused extensive damage to railway tracks in several parts of the country (pic courtesy Army)

Railway sources said that the damages caused to railway tracks could be more than USD 300 mn.

According to UNDP Rapid Crisis Assessment Sri Lanka’s railroad system, over 278 km of railways were exposed to cyclone-related flooding, including 35 railroad bridges nationwide. This figure reflects flooding only, but other hazards (such as localised debris, landslides, or damage to a single bridge) can also disrupt operations, meaning that even relatively small obstructions can render long stretches of railway non-operational. Like road exposure, railway exposure limits mobility and the capacity of affected populations to access key services and infrastructure.

At the level of divisional secretariats, Colombo and Thimbirigasyaya in Colombo District, Ja Ela in Gampaha District, as well as Mannar Town and Nanaddan in Mannar District all registered over 10 km of exposed railways each.

Commissioner-General of Essential Services B.K. Prabath Chandrakeerthi is on record as having said that only 478 kilometers of Sri Lanka’s 1,593-km railway network were currently usable following extensive damage caused by the recent cyclone.

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US, SL advancing free, open, and resilient Indo-Pacific region: Embassy

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Allison Hooker

Under Secretary of State for Political Affairs Allison Hooker arrived in Colombo yesterday (11) to underscore US interest in defence, trade and maritime security in line with their Indo-Pacific strategy.

The US embassy here issued the following statement: “Under Secretary Hooker will meet with Sri Lankan counterparts to discuss a wide range of bilateral issues, focused on deepening economic and commercial ties, strengthening defence cooperation, and supporting Sri Lanka’s economic and maritime sovereignty.

The United States and Sri Lanka share a strong and enduring partnership rooted in our mutual commitment to regional security, economic growth, and prosperity for our peoples. Through close cooperation on defence, trade, and maritime security, we are working together to advance a free, open, and resilient Indo-Pacific region.

As we continue to build on our strategic partnership, the United States also stands with the people of Sri Lanka as they respond to the devastating impacts of Cyclone Ditwah. We remain committed to working together to address both immediate challenges and long-term opportunities for our two nations, reflecting our ongoing commitment to the U.S.-Sri Lanka partnership.”

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