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Monetary Board complains certain market lending rates remain excessive

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The Monetary Board of the Central Bank on Wednesday (23) 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 11.00 per cent and 12.00 per cent, respectively.

It said in a statement: The Board arrived at this decision following a careful analysis of current and expected developments in the domestic as well as the global economy, while noting the significant easing of monetary conditions effected since June 2023.

The Monetary Board took note of the downward adjustment of market interest rates in response to monetary policy easing measures implemented thus far and the need to allow space for further adjustment of market interest rates swiftly. However, the Board observed that market interest rates of certain lending products remain excessive and are not in line with the current monetary policy stance.

Moreover, the Board anticipates a faster reduction in overall market lending interest rates in line with the recent monetary policy easing measures. Accordingly, the Board decided to adopt targeted administrative measures to reduce specific lending interest rates that it considered to be excessive and direct the licensed banks to reduce overall rupee lending interest rates by an appropriate margin in the period ahead.

Headline inflation, measured by the year-on-year change in the Colombo Consumer Price Index (CCPI, 2021=100), decelerated to 6.3 per cent in July 2023, reaching single digit levels for the first time since November 2021. Following a similar trend, headline inflation, based on the National Consumer Price Index (NCPI, 2021=100), also decelerated to 4.6 per cent in July 2023 (year-on-year).

The moderation in headline inflation was mainly driven by the softening of energy and food inflation, along with the favourable statistical base effect. Meanwhile, CCPI and NCPI based core inflation, which reflects underlying demand pressures in the economy, moderated to 6.1 per cent and 6.3 per cent, respectively, in July 2023 (year-on-year). Headline inflation is expected to moderate further over the next few months and stabilise around mid-single digit levels over the medium term.

Domestic economic activity is expected to recover in the second half of 2023 and gradually reach the potential level of economic growth over the medium term Economic activity is projected to recover gradually during the second half of 2023 and reach its potential level thereafter, supported by the normalisation of monetary conditions, improvements in business confidence, enhancements in supply conditions and the relaxation of import restrictions, and the impact of growth promoting structural reforms.

Leading indicators of economic activity point to a lower contraction in GDP in the second quarter of 2023, compared to the previous projections, while the second half of 2023 is expected to record a positive growth, compared to the same period in 2022. However, the impact of weather related disruptions and modest external demand conditions could weigh on expected growth in the near term. The external sector remains resilient, allowing a gradual relaxation of balance of payments restrictions.

The trade deficit decreased notablyduring the seven months ending July2023 with a significant decrease in mer-chandise imports, despite the decrease inmerchandise exports. Earnings fromtourism and workers’ remittances, whichimproved considerably from January toJuly 2023, in comparison to the corre-sponding period in the previous year, areexpected to improve further in the periodahead. Despite some recent outflows fromthe government securities market, netforeign investment inflows remained pos-itive during the seven months endingJuly 2023. In view of the improvementsin the balance of payments conditionsand the need to support the recovery ofactivity, the Government relaxed importrestrictions related to 638 HS codes,including those of commercial vehicles,since June 2023. Although a significantshare of import restrictions has alreadybeen relaxed, demand for imports contin-ued to remain subdued, reflecting thetight financial conditions



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COPE discovers fake documents covering drug imports in 2022/23

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The Parliamentary watchdog Committee on Public Enterprises (COPE) has found that there were fake documents regarding the importing of medicines under the emergency procurement system in 2022 and 2023.

This was revealed during a COPE meeting held at Parliament probing the transactions of the National Medicine Regulatory Authority (NMRA).

NMRA CEO Saveen Semage told the committee that several fake documents have been found due to the lack of registration of medicines.

Stating that six such fake documents were found last year alone, Semage said he had recorded statements regarding each of the documents with the Financial Crimes Investigation Division.

He revealed that, however, no investigations have been conducted yet into the incidents.

“We have documents with confessions from a woman accepting that fake documents had been made. However, a statement has not even been recorded from that woman yet,” he said.

Meanwhile, COPE member MP Asitha Niroshana Egoda Vithana also revealed that the highest number of waive-off registrations (WOR) for medicines had been obtained in 2022 and 2023.

He said 656 such WORs had been obtained in 2022 and 261 in 2023, adding that this proves that discrepancies have taken place during the emergency procurement of medicines during these periods.

Furthermore, Deputy Director General of the Medical Supplies Division of the Health Ministry, Dr. G. Wijesuriya said discussions are underway on allowing the State Pharmaceutical Corporation (SPC) to directly import essential medicines.He pointed out that it was essential to take a policy decision in this regard as a solution to mitigate such discrepancies.

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Batalanda report tabled in parliament, forwarded to AG

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Bimal Ratnayake

The Batalanda Commission report was tabled in Parliament on Friday by the Leader of the House and Transport Minister, Bimal Ratnayake.

Minister Ratnayake announced that the government has decided to forward the report to the Attorney General for legal advice. Additionally, a Presidential Committee will be appointed to provide guidance and recommendations on how to proceed with the findings of the report.

Ratnayake said that the Cabinet of Ministers, along with President Anura Kumara Dissanayake, has made a policy decision to take necessary action in response to the report. He reassured the public that steps are being taken to ensure that such a dark chapter in the country’s history is never repeated.

Minister Ratnayake said that a two-day debate on the Batalanda Commission report will be scheduled in Parliament at an appropriate time, allowing for a detailed discussion on the report’s findings and recommendations.

The report, which will be printed in all three official languages—Sinhala, Tamil, and English—will be made available to the public in the near future. Ratnayake confirmed that printed copies would be provided to members of Parliament as well as the general public for their review.

The Leader of the House further revealed that there are 28 evidence volumes associated with the commission’s work, which will be submitted to Parliament at a later date for further scrutiny.

Ratnayake said that as entire country concerned of the Batalanda Commission’s findings, the government’s commitment to addressing the issues raised and preventing future atrocities stands clear. The next steps, including legal action and policy recommendations, will be shaped by expert advice and informed parliamentary discussions, he said.

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CB Governor stresses need to assist crisis-hit construction industry

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Governor of the Central Bank Dr. Nandalal Weerasinghe on Friday (14) emphasized the importance of promoting a sustainable and cost-effective construction industry in the country, highlighting key challenges and opportunities in the sector.

Speaking at ‘Construction Expo 2025’, Dr. Weerasinghe underscored the need for Sri Lanka to align with global trends in sustainable construction, integrating cost-effective energy solutions and eco-friendly building practices.

“I must say my views here are not necessarily as Governor of the Central Bank of Sri Lanka, but as a person looking at this construction industry and how this can be developed and what the issues are. Sustainability in construction is essential, not just for new projects but also for existing buildings,” he noted.

Dr. Weerasinghe acknowledged that the construction sector has been one of the hardest-hit industries due to multiple economic pressures in recent years including the decline in public investments, high material costs and the industry being dependent on government projects.

The CBSL Governor, who acknowledged that the government faced fiscal constraints, limiting infrastructure spending and delaying payments to contractors, said that however, the outstanding arrears had now been settled.

“Government did not have space to spend money for public investment, especially construction that had a significant impact on the industry in the last couple of years, plus the government inability to pay the arrears for a long period. That was an issue we all recognize that has been one of the adverse impacts the industry had in the past”, he expressed.

“Also the cost of materials went up significantly, partly because of foreign exchange shortages. As a result, the shortage had shot up the prices of construction materials, as well as depreciation of the currency, high interest rates, finance costs, and other factors. We all recognize that it had an adverse impact on the industry. It’s one of the worst affected industries because of all these factors.”

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