Monetary Policy Review: October 2020
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 21 October 2020, decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 4.50 per cent and 5.50 per cent, respectively, thereby continuing the prevailing accommodative monetary policy stance.
The Board noted the decline in overall market lending rates, following the unprecedented monetary easing measures taken by the Central Bank thus far during the year, and expects the broadbased downward adjustment in market lending rates to continue, thereby ensuring affordable credit flows to productive sectors of the economy in the prevailing low inflation environment.
Global monetary policy continues to remain accommodative as global growth prospects remain bleak with the resurgence of COVID-19 in many parts of the world
The global economy, as per the World Economic Outlook (WEO) of the International Monetary Fund (IMF) released in October 2020, is projected to contract by 4.4 per cent in 2020. The outlook for growth in 2020 is less severe than the IMF’s previous forecast, supported by large scale policy stimuli implemented worldwide. However, the recent surge in COVID-19 cases globally has prompted several countries to reimpose lockdowns, which may dampen global growth prospects.
Against this background, most central banks across the globe are expected to continue their accommodative monetary policy stance in the foreseeable future.
The Sri Lankan economy is expected to move along a faster recovery path, despite the latest surge in COVID-19 cases locally that could hamper near term growth prospects.
The release of GDP estimates for the second quarter of 2020 by the Department of Census and Statistics (DCS) has been delayed. It is likely that the second quarter of 2020 has recorded a greater contraction than in the first quarter, followed by a recovery in the third quarter of the year. However, as per the DCS, the unemployment rate, which was estimated at 5.7 per cent in the first quarter of 2020, has declined to 5.4 per cent in the second quarter. The level of employment has also remained broadly unchanged in the second quarter compared to the large decline reported for the first quarter. These suggest that economic activity has remained without much deterioration in the second quarter. Other developments observed in leading indicators and high frequency data since the relaxation of the countrywide lockdown measures suggest that Sri Lanka is on a path towards economic revival. The unexpected COVID-19 cluster that has emerged recently could somewhat affect this momentum in the near term, but the expeditious measures that are being taken by the government to contain the spread could limit this impact.
External sector remains resilient with improved liquidity in the foreign exchange market
Better than expected outcomes in the external sector, as reflected by the incoming data, are indicative of the resilience of the external sector amidst growing worldwide uncertainties triggered by the outbreak of COVID-19. Alongside the improvement in earnings from merchandise exports, restrictions imposed on the importation of non-essential goods and low crude oil prices helped narrow the trade deficit substantially during the nine months ending September 2020. Services exports, excluding the tourism sector, continued to record a healthy growth led by computer and logistic services related activities. Workers’ remittances continued to record a notable acceleration since June 2020. In the meantime, Sri Lanka successfully settled the International Sovereign Bond (ISB) of US dollars 1 billion matured in early October 2020, continuing the unblemished record on debt servicing. The exchange rate remained stable and the depreciation of the Sri Lankan rupee against the US dollar is limited to 1.5 per cent thus far during the year. In this background, the Central Bank continued to purchase a sizeable volume of foreign exchange from the domestic market. Gross official reserves were estimated at US dollars 6.7 billion at end September 2020, which provided an import cover of 4.6 months.
Inflation is expected to remain within the desired range
Headline inflation, based on the Colombo Consumer Price Index (CCPI), decelerated in September 2020, on a year-on-year basis, while there was some acceleration in the National Consumer Price Index (NCPI) based headline inflation due to the rise in food prices. Meanwhile, core inflation based on both CCPI and NCPI continued to remain low, reflecting subdued demand conditions. The recent increase in food prices is expected to be short-lived supported by domestic supply side developments as well as the recent reduction in prices of several essential goods. Accordingly, inflation is expected to remain broadly within the desired range of 4-6 per cent in the near term and over the medium term with appropriate policy measures.
Most market interest rates have declined, reflecting the impact of the measures taken by the Central Bank thus far during the year
In response to the monetary easing measures effected to bring down borrowing costs of businesses and households, both market deposit and lending rates adjusted notably so far during the year. The Average Weighted Prime Lending Rate (AWPR) declined to historic lows in recent weeks, while new lending rates also adjusted downward in line with the expectations of the Central Bank. The imposition of lending rate caps on selected financial products in August 2020 has also helped bring down the overall lending rates in the market. Further space remains for market lending rates to decline, particularly with the high level of excess liquidity in the money market, which is deposited with the Central Bank at the SDFR of 4.50 per cent at present.
Credit to the private sector picked up notably in August 2020 and the upward trend is expected to continue supported by low interest rates
Following the contractions recorded in the preceding three months, credit disbursed to the private sector expanded notably in August 2020, reflecting the impact of low lending rates as well as concessional credit schemes. The expansion of credit to the private sector is expected to continue in the period ahead, despite the recent rise in COVID-19 infections, which is expected to be short-lived. Meanwhile, the overall domestic credit continued to expand sharply driven by the substantial increase in credit to the public sector. Accordingly, the growth of broad money further accelerated in August 2020.
Policy rates maintained at current levels
In consideration of the current and expected macroeconomic developments highlighted above, the Monetary Board, at its meeting held on 21 October 2020, was of the view that the current accommodative monetary policy stance is appropriate. Accordingly, the Board decided to maintain the Standing Deposit Facility Rate (SDFR) and the Standing Lending Facility Rate (SLFR) of the Central Bank at their current levels of 4.50 per cent and 5.50 per cent, respectively. The Central Bank will continue to monitor domestic and global macroeconomic and financial market developments and take further measures appropriately to ensure that the economy promptly reverts to a sustained high real GDP growth path, while maintaining inflation in the 4-6 per cent range under its flexible inflation targeting framework.
Dialog Enterprise with Fortinet strengthens the security of its Managed SD-WAN Service for Sri Lankan Enterprises
Dialog Enterprise, the corporate solutions arm of Dialog Axiata PLC, announced the strengthening of its Flexnet managed SD-WAN service leveraging the Secure SD-WAN solution from Fortinet, a global leader in cybersecurity with broad and integrated solutions.
Dialog Enterprise pioneered the Sri Lanka’s first Managed SD-WAN service with the release of its Flexnet offering since September 2019. Two years after, most modern organisations are embracing digital acceleration, driving demand for greater agility in networks in order to stay competitive and deliver superior customer experiences. With the scale and variety of cyber threats continuing to grow, Dialog Enterprise enhances its Flexnet service with the Fortinet Secure SD-WAN. Fortinet Secure SD-WAN accelerates network and security convergence, aims at simplifying WAN architecture, and securing work-from-anywhere new normality with embedded ZTNA (zero-trust network access) Access Proxy for explicit per-user application access controls. It delivers integrated security and safer access to internal and external data and applications wherever they are residing, on-premises, or in the cloud.
By integrating Fortinet Secure SD-WAN solution to its Flexnet managed SD-WAN service, Dialog Enterprise will enable its customers the ability to cost-effectively eliminate security gaps in their network while gaining the benefits of advanced routing and self-healing WAN capabilities to ensure superior quality of experience for their users, and an increased business uptime. Additionally, an improved connectivity and user experience can be achieved through an integrated security by prioritizing network traffic and reduced latency. As well as the benefit of an integrated security by prioritizing network traffic is achieved by offering, unified thread management, SSL inspection and proactive security threat prevention.
“With the recent shift to remote working, cloud adaptation and SaaS usage accelerating SD-WAN adoption with organizations, many of our customers in the government, finance, retail, services and manufacturing industries will benefit from Dialog Enterprise’s Managed SD-WAN based on the Fortinet Secure SD-WAN solution. It provides us with an integrated, one-stop management and orchestration console to ensure that connections, configurations, advanced routing features and protections are easily configurable. Being the only Fortinet Managed Security Service Provider in Sri Lanka, we have already been able to provide Secure SDWAN solutions with Fortinet in over 1000 locations across the island.” said Navin Pieris, Group Chief Officer – Dialog Enterprise at Dialog Axiata PLC.
SLT-MOBITEL completes first phase of Amazon Alexa integrations for Home Broadband customers offering exciting digital lifestyles
The first phase of fully integrating Amazon Alexa for SLT-MOBITEL Home Broadband customers was successfully concluded recently. Now customers can seek help from Amazon’s virtual smart assistant Alexa and obtain a range of information on SLT-MOBITEL services such as Voice, Broadband, PEO TV services etc. ensuring subscribers experience exciting new intelligent built digital lifestyles.
Pictured Dilshan Boteju, Chief Executive Officer of The Connection Workshop, handing over the report on the concluded project to Prabhath Dahanayake, Chief Marketing Officer SLT. Also present were Lathika Weerasinghe, Administrative Coordinator, Anup Silva, Lead Developer Alexa program of The Connection Workshop, Ayoma Wickramaarachchi, Deputy General Manager, Product Development & Management of SLT, Ruwan Rekogama, Engineer-Product Development & Management of SLT.
Loops wins big at SLIM DIGIS
Award-winning creative-led integrated marketing agency, Loops Integrated, received 6 recognitions, including a Gold, at the SLIM DIGIS Awards, held on the 25th of January 2022. Loops Integrated received the only Gold DIGI in the Banking and Finance category for Softlogic Invest’s “This Could Be You” campaign, a Silver DIGI in the Performance Marketing category for British Council’s IELTS programme, and another Silver DIGI in the Best Use of Branded Content category for Sri Lankan Airlines. In addition to these three prestigious awards, Loops Integrated also received 3 finalist awards for the Banking & Finance, Performance Marketing and Best Use of Branded Content categories.
Discussing the awards, CEO at Loops, Wasaam Ismail said, “We work with our clients as partners, therefore it’s important to say a big thank you to them for having faith in us and letting us take their campaigns to town. Putting together creative-led campaigns amidst working from home during periodic lockdowns is nothing short of a herculean undertaking, which would not have been possible without our stellar team. Therefore, I must also acknowledge and appreciate our exceptionally talented, committed, dedicated and mind-blowingly fun team here at Loops, without whom none of this would be possible. A big thank you also to SLIM for ensuring that digital marketers in Sri Lanka have a national platform upon which to be recognized.”
The SLIM DIGIS awards is organized by the Sri Lanka Institute of Marketing (SLIM) and recognizes and celebrates Sri Lanka’s best digital marketing work, innovation and talent. SLIM is the national body for marketing in Sri Lanka and the SLIM DIGIS is among Sri Lanka’s most prestigious awards programmes that recognize innovation and budding talent in the digital marketing space.
Loops is an award-winning Creative Led Integrated Marketing Agency with operations in Sri Lanka, Qatar, Malaysia & Australia. The agency has worked with over 250 brands in 15 countries and has over 50 awards for its efforts in creative and digital excellence, awarded by both international and local bodies. Visit www.loops.lk to learn more.
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