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Reuters: The Central Bank kept key policy rates steady at record lows for a ninth straight month on Friday, as expected, saying that private sector credit growth is picking up and that longer term lending rates are adjusting downwards.
The standing deposit facility rate (SDFR) or repurchase rate and standing lending facility rate (SLFR) or reverse repurchase rates were left unchanged at 6.50% and 8.00%, respectively.
The Central Bank also continued to restrict access to the SDF for commercial banks, allowing banks to deposit excess money at 6.50% only three times in a month and at 5% thereafter, which the market has seen as an effective rate cut.
Central Bank Governor Ajith Nivard Cabraal said the $67 billion economy is on track to achieve this year’s 7.8% growth target and 8% next year.
“The indications show inflation will further moderate and growth should also strongly pick up with the number of investments we see,” Cabraal told Reuters.
Private sector credit growth, which hit a more than 4-1/2-year low of 0.8% in July year-on-year, picked up for the first time since December 2013, showing a 2.6% expansion in August.
“We will allow credit growth to the target and once we reach it, we will carefully monitor the credit growth,” to prevent any bubbles, Cabraal said.
The Central Bank has estimated 14% private sector credit growth for 2014.
The Central Bank also on Wednesday raised the yield by 11 basis points at a 364-day Treasury bill auction for the first time in 10 months, which Cabraal later said was a signal where the authorities want rates to be. The yield rose to 6.00%.
Cabraal said it is very likely that the yields will be in the range of around 6%.
Sri Lanka’s point-to-point inflation remained steady at 3.5% in September and the Central Bank expects it to be in the range of 3-4% by end 2014.
The rise in the yield came after foreign investors started sell Government securities due to lower rates. Foreigners have sold a net Rs. 26.2 billion ($ 200.46 million) worth securities in the three weeks through 7 October.
Shiran Fernando, an economist at Colombo-based Frontier Research said market interest rates will be under upward pressure if foreigners continue to sell bonds from emerging and frontier markets including Sri Lanka in the wake of rising US Treasury yields.
“That would pose a threat to the Central Bank’s current policy stance,” he said.
Between December 2012 and January 2014, the Central Bank cut the repurchase rate by 125 basis points (bps) and the reverse repurchase rate by 175 bps to stimulate growth.
However, growth of credit extended to the private sector had been sluggish, which some banks and economists attributed to higher taxes and lower disposable income.
Analysts have said a lack of transparency in Government contracts had also dampened business sentiment.
The Government reduced fuel prices since 15 September and has signalled a further possible reduction in the 2015 budget scheduled for 24 October.
However, analysts say the price reductions can be reversed after a possible early national election, in which President Mahinda Rajapaksa expects to run for his third six-year term.
SL is gearing to be Asia’s next tiger: UK Financial Times
Sri Lanka is gearing itself to be Asia’s next tiger, only five years after ending the three-decades-long separatist war with economic reforms fuelling astounding growth, the prestigious Financial Times published in the UK stated.
Since 2009, when the war ended the country’s Gross Domestic Product has surged 175%, to $67bn, and is projected to top $ 76 b this year. Real GDP, adjusted for price changes, is up by two-thirds over the period, to 6.7%, and is projected to remain in that range for the medium term.
Inflation is in check, falling from 11 to 6.9%, and investment is building. The Colombo Stock Exchange’s capitalisation has more than quintupled since 2005, to Rs. 2.94 trillion ($ 22.6 b). “The market is on a positive trajectory, and we expect a period of exponential growth,” the FT quotes Vajira Kulatilaka, Chairman of the Colombo Stock Exchange as saying, during a Sri Lanka Investment Forum in New York last month.
“A lot of companies that went through a bad patch have now started investing, retail has picked up and economic activity is taking place in the country.”
Foreign investors have taken notice. More than a third of investments in the CSE are from abroad, and foreign direct investment inflows came to $ 1.4 b last year, from $ 300 m in 2005. Last month US-based TPG Capital Management reached terms to buy a majority stake in Union Bank of Colombo for $ 113 m in what would be the country’s biggest buyout deal. Foreign retail investment remains thin, but access is widening.
Kulatilaka says no Western firms are known to be working on country-specific funds, though many US and European index funds and exchange traded funds tracking frontier markets have Sri Lanka exposure. Kulatilaka expects the Bourse will have its first ETF launch next year. Unit trusts are accessible to foreign investors through domestic custodian banks.
In July the domestic house Ceylon Asset Management launched Sri Lanka’s first US dollar-denominated mutual fund, which invests in sovereign debt and securities issued by rated banks and companies in Sri Lanka. “It is a stock-pickers’ market,” says Gustavo Galindo, Portfolio Manager at Russell Investments, which operates indices as well as active funds with exposure.
“You have to have a long-term perspective because liquidity will be tight since there are not that many investors, but precisely because there are not that many investors, you have these big stock fluctuations and valuations that create opportunity,” added Galindo.
“The infrastructure, tourism and consumer sectors are especially promising,” Galindo says. Sri Lanka’s Government bond market is its biggest for foreign investors.
http://www.ft.lk/2014/10/18/cb-holds-rates-at-record-lows-as-credit-picks-up/
The standing deposit facility rate (SDFR) or repurchase rate and standing lending facility rate (SLFR) or reverse repurchase rates were left unchanged at 6.50% and 8.00%, respectively.
The Central Bank also continued to restrict access to the SDF for commercial banks, allowing banks to deposit excess money at 6.50% only three times in a month and at 5% thereafter, which the market has seen as an effective rate cut.
Central Bank Governor Ajith Nivard Cabraal said the $67 billion economy is on track to achieve this year’s 7.8% growth target and 8% next year.
“The indications show inflation will further moderate and growth should also strongly pick up with the number of investments we see,” Cabraal told Reuters.
Private sector credit growth, which hit a more than 4-1/2-year low of 0.8% in July year-on-year, picked up for the first time since December 2013, showing a 2.6% expansion in August.
“We will allow credit growth to the target and once we reach it, we will carefully monitor the credit growth,” to prevent any bubbles, Cabraal said.
The Central Bank has estimated 14% private sector credit growth for 2014.
The Central Bank also on Wednesday raised the yield by 11 basis points at a 364-day Treasury bill auction for the first time in 10 months, which Cabraal later said was a signal where the authorities want rates to be. The yield rose to 6.00%.
Cabraal said it is very likely that the yields will be in the range of around 6%.
Sri Lanka’s point-to-point inflation remained steady at 3.5% in September and the Central Bank expects it to be in the range of 3-4% by end 2014.
The rise in the yield came after foreign investors started sell Government securities due to lower rates. Foreigners have sold a net Rs. 26.2 billion ($ 200.46 million) worth securities in the three weeks through 7 October.
Shiran Fernando, an economist at Colombo-based Frontier Research said market interest rates will be under upward pressure if foreigners continue to sell bonds from emerging and frontier markets including Sri Lanka in the wake of rising US Treasury yields.
“That would pose a threat to the Central Bank’s current policy stance,” he said.
Between December 2012 and January 2014, the Central Bank cut the repurchase rate by 125 basis points (bps) and the reverse repurchase rate by 175 bps to stimulate growth.
However, growth of credit extended to the private sector had been sluggish, which some banks and economists attributed to higher taxes and lower disposable income.
Analysts have said a lack of transparency in Government contracts had also dampened business sentiment.
The Government reduced fuel prices since 15 September and has signalled a further possible reduction in the 2015 budget scheduled for 24 October.
However, analysts say the price reductions can be reversed after a possible early national election, in which President Mahinda Rajapaksa expects to run for his third six-year term.
SL is gearing to be Asia’s next tiger: UK Financial Times
Sri Lanka is gearing itself to be Asia’s next tiger, only five years after ending the three-decades-long separatist war with economic reforms fuelling astounding growth, the prestigious Financial Times published in the UK stated.
Since 2009, when the war ended the country’s Gross Domestic Product has surged 175%, to $67bn, and is projected to top $ 76 b this year. Real GDP, adjusted for price changes, is up by two-thirds over the period, to 6.7%, and is projected to remain in that range for the medium term.
Inflation is in check, falling from 11 to 6.9%, and investment is building. The Colombo Stock Exchange’s capitalisation has more than quintupled since 2005, to Rs. 2.94 trillion ($ 22.6 b). “The market is on a positive trajectory, and we expect a period of exponential growth,” the FT quotes Vajira Kulatilaka, Chairman of the Colombo Stock Exchange as saying, during a Sri Lanka Investment Forum in New York last month.
“A lot of companies that went through a bad patch have now started investing, retail has picked up and economic activity is taking place in the country.”
Foreign investors have taken notice. More than a third of investments in the CSE are from abroad, and foreign direct investment inflows came to $ 1.4 b last year, from $ 300 m in 2005. Last month US-based TPG Capital Management reached terms to buy a majority stake in Union Bank of Colombo for $ 113 m in what would be the country’s biggest buyout deal. Foreign retail investment remains thin, but access is widening.
Kulatilaka says no Western firms are known to be working on country-specific funds, though many US and European index funds and exchange traded funds tracking frontier markets have Sri Lanka exposure. Kulatilaka expects the Bourse will have its first ETF launch next year. Unit trusts are accessible to foreign investors through domestic custodian banks.
In July the domestic house Ceylon Asset Management launched Sri Lanka’s first US dollar-denominated mutual fund, which invests in sovereign debt and securities issued by rated banks and companies in Sri Lanka. “It is a stock-pickers’ market,” says Gustavo Galindo, Portfolio Manager at Russell Investments, which operates indices as well as active funds with exposure.
“You have to have a long-term perspective because liquidity will be tight since there are not that many investors, but precisely because there are not that many investors, you have these big stock fluctuations and valuations that create opportunity,” added Galindo.
“The infrastructure, tourism and consumer sectors are especially promising,” Galindo says. Sri Lanka’s Government bond market is its biggest for foreign investors.
http://www.ft.lk/2014/10/18/cb-holds-rates-at-record-lows-as-credit-picks-up/
