Business
‘SL’s inflation reduced to single digit levels in 2023 along with restoration of price stability’
The Central Bank of Sri Lanka released the Monetary Policy Report – February 2024 in keeping with the requirements of the Central Bank of Sri Lanka Act, No. 16 of 2023. The content of this Report is mainly based on information that was considered by the Monetary Policy Board of the Central Bank of Sri Lanka in formulating the monetary policy decision during the January 2024 review.
This is the second Monetary Policy Report published by the Central Bank to provide forward-looking insights about the economy, particularly in terms of inflation and economic growth. The Report also aims to provide an assessment of risks to the projections on inflation and economic growth, considering the ongoing and expected developments of domestic and global fronts. Through this report, the Central Bank strives to improve its transparency and accountability by communicating the rationale for the recent monetary policy decisions of the Central Bank.
The key highlights of the Monetary Policy Report – February 2024
Sri Lanka successfully reduced inflation to single-digit levels in 2023 and restored price stability, after containing the historically highest inflation observed in 2022
Supported by corrective policies and structural reforms, economic activity gradually regained momentum in 2023
Monetary policy was relaxed on several occasions since June 2023 as inflation decelerated and inflation expectations remained anchored, while external sector pressures eased
Inflation may deviate from the target in the near term mainly due to the recent tax amendments and supply side disruptions, although such impact is likely to be short-lived.
Inflation is projected to stabilise around the targeted level of 5 per cent (year-on-year) over the medium term
Annual economic growth is expected to turn positive in 2024 and gradually reach its potential over the medium term
The Executive Summary of the Monetary Policy Report – February 2024 is given below:
The Sri Lankan economy progressed on the path towards restored macroeconomic stability in 2023 where inflation was brought down from its highest levels in history observed in 2022, to single-digit levels. Moreover, amidst uncertainties and challenging conditions following the worst crisis in the country’s history, economic activity resumed gradually, supported by the gradual easing of monetary policy and monetary conditions and the revival in the external sector.
Corrective macroeconomic policies and the implementation of required structural reforms were instrumental in achieving domestic price stability, thereby reinforcing overall macroeconomic stability. Following the rapid disinflation observed in the first half of 2023, year-on-year headline inflation, as measured by the Colombo Consumer Price Index (CCPI), moderated to single-digit levels, dropping to as low as 1.3 per cent in September 2023 within a year since striking its peak.
Inflation accelerated somewhat to 4.0 per cent by end 2023 due to supply-driven factors and the dissipating effect of the favourable base. Core inflation based on the CCPI also moderated significantly during 2023, reflecting subdued underlying demand pressures.
Meanwhile, the domestic economy made a steadfast recovery in 2023 benefitting from the gradual return of overall macroeconomic stability with the implementation of long-term-oriented economic policies by the Government and related authorities. Moreover, the strong commitment to reviving the economy through the adoption of such policies helped improve investor sentiments.
Accordingly, with uncertainties dissipating and improvements observed on all macroeconomic fronts, the economy recorded an expansion in its activity in Q3-2023, after six consecutive quarters of contraction. Supported by the easing of monetary policy and improvement in domestic economic activity, an expansion in credit to the private sector was observed since mid-2023, and this momentum is expected to continue in the period ahead.
The Central Bank continued to relax monetary policy during the second half of 2023 as the economy reached a state of stability with inflation remaining low and inflation expectations remaining anchored, while external sector pressures eased. Following the rapid disinflation process, current inflation remains closer to the inflation target.
However, projections indicate a deviation of inflation from the target, primarily due to amendments to Value Added Tax (VAT) introduced in January 2024, before it retraces towards the target from around end 2024. This uptick in inflation is expected to be short-lived, thereby posing no significant threat to maintaining inflation at the targeted level of 5 per cent over the medium term. On the whole, risks to the near-term inflation projections are skewed to the upside, largely due to supply-side factors, while risks to medium-term inflation projections are balanced. Economic growth is expected to remain
subdued in the short term but is expected to recover gradually towards its potential. Risks to real economic growth projections are skewed to the downside both in the near term as well as in the medium term, as economic activity is susceptible to adverse developments on the global front that affect export recovery, as well as loss in productivity due to outmigration of skilled labour and structural impediments to growth.
(CBSL)
Business
Low-quality coal shipment affects Lakvijaya coal power plant operations
Operations at Sri Lanka’s main coal-fired power facility, the Lakvijaya coal power plant, suffered a significant disruption soon after a new shipment of coal was introduced, raising concerns over generation stability and environmental emissions.
Energy analyst Dr. Vidura Ralapanawa said in a social media post that the plant began using coal from “Ship 11” on Wednesday, following confirmation from officials of the Ceylon Electricity Board (CEB).
However, almost immediately after the new batch of coal was fed into the system, the plant’s generation capacity began to decline due to the poor quality of the fuel.
According to Dr. Ralapanawa, the plant’s output dropped by about 82 megawatts overall. Unit 1 recorded a drop of 45 MW, Unit 2 fell by 15 MW, and Unit 3 declined by 22 MW shortly after the coal was introduced.
The situation worsened later in the night when two coal mills in Unit 3 reportedly became clogged around 11 p.m., causing a rapid fall in generation capacity. Unit 3, which normally operates at a higher output level, was said to be running at around 170 MW following the malfunction.
Coal mills are a crucial component in coal-fired power generation. They grind raw coal into a fine powder before it is fed into the boiler for combustion. Each generating unit at the Norochcholai facility is equipped with five coal mills, and any obstruction in these systems can severely affect plant operations.
When mills become clogged, plant operators often have to rely on diesel-fired burner guns to stabilise the flame inside the boiler. While this helps maintain combustion, it significantly increases operating costs because of the high price of diesel.
The heavy use of diesel has another consequence. According to Dr. Ralapanawa’s post, when diesel firing increases, the plant’s Electro-Static Precipitators (ESPs) must be shut down. ESPs are designed to capture and remove particulate matter such as fly ash before emissions are released through the chimney.
With the ESPs switched off, large amounts of fly ash may be released into the atmosphere, potentially affecting surrounding communities.
Dr. Ralapanawa further noted that the coal shipment appears to have low calorific value, low volatile matter, and high ash content, all of which reduce combustion efficiency. In addition, the coal reportedly has a low grindability index, making it harder to pulverise and increasing the likelihood of mill blockages.
He added that while the immediate clogging of the mills may be cleared within a day, the underlying quality issues with the coal could make the problem persistent.
The development comes amid earlier assurances from officials of the Ceylon Electricity Board that the Norochcholai plant could be operated effectively even with lower-quality coal supplies.
The Norochcholai facility, with an installed capacity of 900 MW, is the largest power station in Sri Lanka and a critical component of the national grid. Any disruption to its operations can have wider implications for the country’s electricity supply, potentially forcing the system to rely on more expensive oil-based power generation.
Engineers are currently working to address the clogged mills and stabilise generation, but energy analysts warn that unless the fuel quality improves, similar operational issues could recur.
By Ifham Nizam
Business
CSE regains some positive terrain but challenges remain
CSE trading yesterday was positive overall on account of local economic growth prospects but concerns deriving from West Asian tensions lingered.
The market is still recovering from previous days’ uncertainties, market analysts said.
The All Share Price Index went up by 256 points, while the S and P SL20 rose by 63.8 points. Turnover stood at Rs 5.68 billion with nine crossings.
Seven crossings were reported in HNB Finance where 130 million shares crossed to the tune of Rs 1.1 billion; its shares traded at Rs 8.50, LMF four million shares crossed for Rs 348 million; its shares traded at Rs 87, Commercial Bank 661,000 shares crossed for Rs 142 million; its shares traded at Rs 215, Seylan Bank (Non-Voting) 750,000 shares crossed for Rs 49 million; its shares sold at Rs 75.50, ACL Cables 500,000 shares crossed for Rs 49 million; its shares traded at Rs 98, HNB 100,000 shares crossed for Rs 43.2 million; its shares sold at Rs 432 and Access Engineering 500,000 shares crossed for Rs 38.5 million and its shares fetched at Rs 77.
In the retail market companies that mainly contributed to the turnover were; HNB Finance Rs 331 million (34.8 million shares traded), Lanka Credit and Business Finance Rs 184 million (21.6 million shares traded), LOLC Holdings Rs 180 million (320,000 shares traded), Commercial Bank Rs 167 million (774,000 shares traded), Softlogic Capital Rs 138 million (twelve million shares traded), Sampath Bank Rs 124 million (789,000 shares traded) and ACL Cables Rs 123 million (1.26 million shares traded). During the day 330 million share volumes changed hands in 36639 transactions.
It is said that the banking and financial sectors performed well. HNB Finance was active in the financial sector, while Commercial Bank and HNB were active in the banking counters.
Further, National Development Bank has received Colombo Stock Exchange approval in principle to list Rs 16 billion of 11.50, 11.04 and 11.85 percent debentures, it said in a CSE filing.
NDB will issue 120 million Tier 2, listed, rated, unsecured, subordinated, redeemable Basel III compliant GSS+ bonds with a non-viability conversion, at Rs 100 each.
Yesterday the rupee was quoted at Rs 310.70/85 to the US dollar in the spot market, weaker from Rs 310.30/60 the previous day, dealers said, while bond yields were broadly steady.
By Hiran H Senewiratne
Business
Indian Ocean under fire: Parliament explodes over the sinking of ‘IRIS Dena’
A new crisis looms with a second Iranian vessel at the doorstep
Sri Lanka’s parliament became a secondary battleground yesterday as the sinking of the Iranian frigate IRIS Dena ignited a fierce debate over national sovereignty, regional maritime priciples, and the government’s perceived ‘strategic paralysis.’
While the Navy’s rescue of 32 sailors was initially painted in shades of heroism, Opposition MPs have now unfurled a narrative of missed warnings and geopolitical betrayal.
In a scathing address, Opposition firebrand Chamara Sampath Dissanayake challenged the circumstances of the vessel’s arrival in Sri Lankan waters. The IRIS Dena had been a guest of the Indian Navy during the MILAN-2026 exercises just days prior. Dissanayake alleged that at the conclusion of the fleet review, the vessel was effectively ‘put out’ of India, leaving the crew with no choice but to steer toward Sri Lanka.
“This was a deliberate attempt by the host to put a guest in harm’s way,” Dissanayake charged, stopping just short of naming India directly while making the implication undeniable. He argued that Sri Lanka had been ‘set up’ to deal with the fallout of a targeted strike that occurred only 11 nautical miles from Galle.
The debate took a darker turn when SJB MP Mujibur Rahman dropped a bombshell regarding the timing of the attack. Rahman alleged that the IRIS Dena had signalled for permission to enter Sri Lankan waters 11 hours before it was struck by U.S. torpedoes.
“Why did the authorities keep silent?” Rahman demanded. He blasted the government for failing to act on humanitarian grounds, suggesting that Colombo’s hesitation provided the necessary window for what U.S. Defense Secretary Pete Hegseth termed a ‘Quiet Death.’ Rahman’s critique painted a picture of a government ensnared in superpower machinations, unable to uphold the principles of the Indian Ocean as a ‘Zone of Peace.’
Responding to the barrage of questions, Cabinet Spokesman Dr. Nalinda Jayatissa confirmed a chilling new development: a second Iranian vessel is currently positioned in the Exclusive Economic Zone (EEZ) off Colombo.
While Jayatissa assured the House that the President and the Security Council are ‘fully aware’ and making ‘necessary interventions’ to protect those on board, the lack of specific details fueled further anxiety. Political analysts suggest that the government’s failure to announce a clear, proactive neutral policy has left it in a state of ‘vacillation,’ unable to decide whether to grant refuge to the second ship or risk another tragedy on its doorstep.
The parliamentary clash was punctuated by the visit of former president Ranil Wickremesinghe to the Iranian Embassy yesterday to offer condolences for the passing of Supreme Leader Ayatollah Ali Khamenei. Wickremesinghe had warned on March 2 – just 48 hours before the sinking – that the current ‘leadership eviction’ methodology in the Middle East could destabilise the Indian Ocean.
As the death toll from the IRIS Dena stands at 87 with 60 still missing, the ‘can of worms’ opened in parliament reveals a nation at a crossroads. The government’s silence during the Dena’s final hours and its current ‘intervention’ with the second vessel will likely define Sri Lanka’s standing in a rapidly fragmenting global order.
As the House adjourned, one question remained hanging in the air: In the face of a superpower conflict, does Sri Lanka have the ‘backbone’ to be truly neutral, or is it merely a spectator to its own maritime destiny?
by Sanath Nanayakkare
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