Business
CBSL maintains policy interest rates at current levels
Extracts of Monetary Policy Review: No.07 – Oct. 2021
The Monetary Board of the Central Bank of Sri Lanka, at its meeting held on 13 October 2021, 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 5.00 per cent and 6.00 per cent, respectively. The Board arrived at this decision after carefully considering the macroeconomic conditions and expected developments on the domestic and global fronts. The Board reiterated its commitment to maintaining inflation at the targeted levels over the medium term with appropriate measures, while supporting the economy to reach its potential in the period ahead.
The global economic recovery is expected to continue despite large disparities across countries. As per the World Economic Outlook (WEO) of the International Monetary Fund (IMF) released on 12 October 2021, the global economy is projected to grow by 5.9 per cent in 2021 and 4.9 per cent in 2022. Economic prospects remain divergent across countries, mainly due to disparities in access to COVID-19 vaccines and policy support. Consumer price inflation in most countries increased significantly, reflecting the impact of pandemic related supply-demand mismatches and the surge in commodity prices, compared to their low base from a year ago.
The Sri Lankan economy is making headway, despite the pandemic related disruptions As per the estimates of the Department of Census and Statistics (DCS), the Sri Lankan economy witnessed a strong recovery during the second quarter of 2021, recording a real growth of 12.3 per cent, year-on-year, following the growth of 4.3 per cent, year-on-year, in the first quarter of 2021. With the gradual return to normalcy after phasing out the COVID-19 related lockdown measures, alongside the successful rolling out of the COVID-19 vaccination programme and growth supportive policy measures, the momentum of economic activity is expected to sustain in the period ahead. Available indicators and projections suggest that the real economy would grow by around 5 per cent in 2021, and gradually traverse to a high and sustained growth trajectory over the medium term, following near-term stabilisation measures that are being put in place by the Government and the Central Bank. The planned coordinated efforts by the Government and the Central Bank are expected to strengthen the external sector in the period ahead Earnings from exports marked a notable improvement and recorded over US dollars 1 billion for the third consecutive month in August 2021. Expenditure on imports has also increased, partly reflecting the surge in global commodity prices, resulting in an expansion in the trade deficit during the eight months ending August 2021, over the corresponding period of last year. Outlook for tourism improved
with the easing of travel restrictions globally and the successful vaccination drive domestically. Despite the moderation of workers’ remittances observed in recent months, a rebound is expected in the period ahead with the improved growth outlook for major foreign employment source countries and greater stability in the domestic foreign exchange market. The realisation of foreign investments in the real sector and the timely adoption of remedial measures by the Central Bank as enunciated in ‘The Six-month Road Map for Ensuring Macroeconomic and Financial System Stability’ are gradually easing pressures in the domestic foreign exchange market. Furthermore, the Central Bank continued to intervene in the foreign exchange market to provide liquidity for essential imports, including fuel. The depreciation of the Sri Lankan rupee against the US dollar is recorded at 6.8 per cent thus far in 2021. The Sri Lankan rupee remains largely undervalued as reflected by the real effective exchange rate (REER) indices. In the meantime, gross official reserves were estimated at US dollars 2.6 billion by end September 2021. This, however, does not include the bilateral currency swap facility with the People’s Bank of China (PBoC) of CNY 10 billion (equivalent to approximately US dollars 1.5 billion). Gross official reserves are expected to improve with the measures that are being pursued by the Government and the Central Bank to attract fresh foreign exchange inflows, as outlined in the Six-month Road Map, thereby reinforcing the stability of the external sector in the period ahead. Market interest rates have adjusted upwards in response to the tightening of monetary and liquidity conditions, while credit and monetary expansion remained elevated In response to the tightening of monetary policy in August 2021, most market deposit and lending rates have adjusted upwards. Further, yields on government securities witnessed a sharp upward adjustment with the removal of maximum yield rates for acceptance at primary auctions. Following these upward adjustments, greater stability is expected in market interest rates in the period ahead. Reflecting the increased demand for credit amidst the low interest rate environment, credit extended to the private sector expanded as envisaged during the eight months ending August 2021. The momentum of credit expansion is expected to continue during the remainder of the year, with the recovery in economic activity and continued efforts to channel credit flows to productive and needy sectors of the economy.
Meanwhile, credit obtained by the public sector from the banking system, particularly net credit to the Government, also increased notably during the eight months ending August 2021. With increased domestic credit, the growth of broad money (M2b) continued to remain elevated. Some inflationary pressures are observed, particularly due to emerging global price developments Inflation accelerated in recent months due to high food inflation and some acceleration in non-food inflation. The surge in global commodity prices prompted the Government to remove maximum retail prices on several essential commodities. Along with resultant upward adjustments in other market prices, this is likely to cause headline inflation to deviate somewhat from the targeted levels in the near term. While such supply side developments in the near term do not warrant monetary policy tightening, measures already taken by the Central Bank in relation to interest rates and market liquidity would help stabilise demand pressures over the medium term.
President Ranil Wickremesinghe actively engaged in a pivotal business round table on “Sri Lanka’s Economic Revival & Opportunities for Japanese Enterprise,” where he presented the nation’s commitment to stabilizing and liberalizing the economy while actively inviting new foreign ventures.
The event, jointly organized by JETRO, Japan-Sri Lanka Business Co-Operation, and the Embassy of Sri Lanka in Japan, aimed to strengthen economic ties between the two nations.
During the round table, President Wickremesinghe fervently outlined the ongoing efforts undertaken by Sri Lanka to restore stability and openness to its economy, presenting an inviting climate for foreign investment. With a clear vision to attract Japanese enterprise, he discussed the various measures and reforms being implemented to create a conducive business environment for potential investors.
Recognizing Japan’s significance as a vital economic partner, President Wickremesinghe emphasized the mutual benefits that can be derived from increased collaboration between the two nations. Sri Lanka’s strategic location and skilled workforce were highlighted as key advantages, providing a gateway for Japanese companies to expand their operations in the region and leverage the country’s emerging economic opportunities.
As Sri Lanka continues its journey toward economic revival, President Wickremesinghe’s active participation in the round table, underscores the government’s unwavering commitment to attracting foreign investment and driving sustainable economic progress.
Lanka Coffee Association, in partnership with Australia’s Market Development Facility (MDF) and Jetwing Hotels, successfully hosted the second annual Sri Lankan Coffee Festival on 19 May 2023.
The coffee sector in Sri Lanka witnessed a notable transformation and attracted a multitude of market actors leading to significant growth in the industry. This surge in participation has propelled the industry to new heights. Recognising the unique opportunities to support the sector, MDF, supported by the Australian government, began working in the coffee industry in 2017.
A key activity that marked the comeback of the Sri Lankan coffee industry was hosting the first-ever Sri Lankan coffee festival by MDF in 2022. Following the success of this inaugural event, the Lanka Coffee Association (LCA), in partnership with MDF and Jetwing Group, hosted the second Sri Lankan Coffee Festival on the 19th of May at Jetwing Colombo 07. The Colombo Coffee Company, Temple Grounds and Soul Coffee were gold, silver and bronze sponsors for the event.
The Australian High Commissioner to Sri Lanka and Maldives, Paul Stephens, was the guest of honour at the festival and delivered the keynote address. He underlined Australia’s support to the growth of the specialty coffee sector in Sri Lanka and noted, “As a nation of coffee drinkers, Australia is pleased to see continued commitment towards developing the coffee sector in Sri Lanka on display here today.”
The 2023 Sri Lanka Coffee Festival showcased the quality and diversity of local coffee and emphasised the importance of promoting investment in this growing sector. The event featured various activities, including panel discussions on the “Upward Journey of the Coffee Industry in Sri Lanka: The Challenges Faced and The Way Forward”. Moreover, the festival provided an excellent platform for coffee growers, processors, and roasters to showcase their products and network with potential buyers and investors.
At the mini exhibition, Colombo Coffee Company, Temple Grounds, Soul Coffee, Helanta Coffee, Elpitiya Plantations, Valli products presented their coffee, allowing the public to experience the unique taste and aroma of locally grown coffee. Concurrently, the finals of the LCA Barista Championship took place.(Regional barista championships were hosted in Dambulla, Galle and Negombo regions throughout April). MDF has actively supported the coffee industry by collaborating with the private sector to improve production and the coffee quality while promoting the industry internationally.
Maryam Piracha, MDF Sri Lanka Country Director, expressed her delight at the successful completion of the 2023 Coffee Festival. She emphasised that MDF has made significant strides in developing and promoting speciality coffee through these events in collaboration with the LCA. MDF is confident that the coffee sector is on track to position Sri Lanka as a global coffee destination.
The audience experienced the unveiling of “Sri Lanka’s Coffee Renaissance: A Guide to the Speciality Coffee Industry” at the festival—a game-changing report by MDF. This report unlocks invaluable insights into the local specialty coffee sector and reveals key investment opportunities. To build on the synergies of coffee and tourism, Jetwing Group, Sri Lanka’s leading hotel chain, was the platinum sponsor for the event. Chairman of Jetwing, Symphony PLC, and The Lighthouse Hotel PLC, Hiran
Cooray added, “Tourism and coffee are like two perfect blends, each complementing the other in creating a unique and unforgettable experience for travellers seeking to discover the beauty and coffee culture of Sri Lanka. Being a part of the 2023 Coffee Festival was a great opportunity to showcase the growing coffee culture and its link to tourism.”
Rinosh Nasar, Chairman, Lanka Coffee Association mentioned, “The Sri Lankan Coffee Festival hosted by the LCA, is a celebration of our rich coffee heritage and the incredible opportunities ahead. At the LCA, we are focused on pushing the growth of the Sri Lankan coffee industry from plant to cup and uplifting the livelihood of our coffee farmers.”
The Australian government’s support has played a pivotal role in ensuring the success and rise of specialty coffee in Sri Lanka. MDF’s collaboration with coffee players in the sector has enabled the Australian government to strengthen bilateral ties between Australia and Sri Lanka, set to impact the global coffee community significantly.
Pelwatte Dairy, the leading local dairy brand in Sri Lanka that produces a range of dairy products and saves valuable foreign exchange, has unveiled its new corporate office in Colombo 3. Pelwatte Dairy’s new corporate home is located at one of the most central and highly accessible locations along the well-known Galle Road within the precincts of Kollupitiya, Colombo 3.
Addressing the opening event on, Ariyaseela Wickremanayake, Chairman of Pelwatta Dairy reminisced about his entrepreneurial journey in the dairy industry. “When building up Pelwatte, I was not sweating for myself but was striving for our struggling dairy farmers who badly needed a fair price for their produce. As I worked for a better standard of life for our farmers, I was driven by a simple but important vision; to make Sri Lanka self-sufficient in dairy and to reduce the country’s dependency on non-local supplies thereby saving valuable foreign exchange.”
Driven by this vision, the company began to grow, and due to our high-quality dairy and competitive pricing in the market, the Pelwatte brand was able to forge ahead. The hard work of the Pelwatte Dairy Industry Ltd (PDIL) family and their commitment drew the company from strength to strength, and as a result of this, Pelwatte today has become the leading local dairy brand in Sri Lanka. Pelwatte is focusing on leveraging its cadre of youth staff to drive it forward in time to come. As such, I am pleased that the youth of the PDIL family are driving many key functions in today’s PDIL. At Pelwatte, the future belongs to the youth” Mr. Ariyaseela Wickremanayake said.
Managing Director of Pelwatte Dairy Akmal Wickremanayake said: “Building PDIL to its present ranks has been hard work and without the commitment of the PDIL family, it would have been even harder. I wish to thank the staff of PDIL for their teamwork and commitment that sometimes went beyond their working hours and roles. Especially all work during the national COVID shutdown period was completed smoothly thanks to the dedication and team culture among our staff. Dairy is a product consumed by people of all ages, and many times a day. Also, different consumer segments, acting as different touchpoints, demand a variety of dairy products. As a result, matching different products in our portfolio to each customer segment ensured PDIL’s success. On my part, I was able to complete the customer needs matching process with our portfolio and distribute accordingly with the support of our team. Realizing the urgency of the need for continued dairy supplies during the lockdown, we expanded production levels to our maximum and succeeded in meeting the market demand.”
Pelwatte Diary’s new corporate office is located at No 234, Kollupitiya, Colombo 03 just a turn from the well-known Galle Road. The opening event was also joined by PDIL’s Board of Directors, suppliers, clients, and staff.
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