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FINANCIAL CHRONICLE™ » DAILY CHRONICLE™ » Sri Lanka stocks slip after IMF loan deal dropped

Sri Lanka stocks slip after IMF loan deal dropped

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sriranga

sriranga
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COLOMBO, Feb 12 (Reuters) - Sri Lankan stocks slipped from a two-week high on Tuesday after the central bank said the country had decided not to pursue a new IMF loan after months of discussion.

The main share index fell 0.26 percent, or 15.24 points, to end at 5,836.11.

The central bank said Sri Lankan authorities had decided not to pursue the new loan from the IMF, which had said it may not be in a position to consider any direct or indirect budget support to Sri Lanka.

The central bank kept policy rates unchanged to support faltering economic growth as it expects inflation to ease from March onwards, with a subsequent fall in deposit and lending rates.

'Another rate cut would have helped the market and many local investors are awaiting a lending rate cut,' said Reshan Kurukulasuriya, Chief Operating Officer at Richard Pieris Securities.

Turnover was 705.26 million rupees ($5.58 million), less than this year's daily average of 1.19 billion rupees.

Foreign investors were net buyers of 38.23 million rupees worth of shares on Tuesday, but they have been net sellers of 1.26 billion rupees so far this year.

The rupee ended firmer at 126.15/25 to the dollar from Monday's close of 126.33/38 on exporter dollar sales, dealers said. ($1 = 126.4000 Sri Lanka rupees)

(Reporting by Ranga Sirilal and Shihar Aneez; Editing by Nick Macfie)

(ranga.sirilal@thomsonreuters.com)(+94-11-232-5540)

(Reuters Messaging: ranga.sirilal.thomsonreuters.com@reuters.net)(twitter.com/rangab a)
http://www.xe.com/news/2013/02/12/3200065.htm?c=1&t=

http://sharemarket-srilanka.blogspot.co.uk/

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics

No Go

12 Feb, 2013 09:38:32

Sri Lanka drops 'budget support' loan with IMF
Feb 12, 2013 (LBO) - Sri Lanka has dropped plans for a new 'budget support' loan program with the International Monetary Fund, the island's central bank said as the lender was not willing to give money directly for government spending.

The IMF usually funds the central bank and other lenders such as its 'Bretton Woods twin' World Bank give direct budget support, though in the case of Europe, fiscal support has been given.
The Central Bank said the Fund has conveyed that it may "not be in a position to consider any direct or indirect budget support to Sri Lanka," since Sri Lanka did not need any exceptional financial support from the IMF.

The Central Bank said since foreign reserves were now about 7 billion US dollars, from the 1 billion dollar level in 2009 when the country started a 2.5 billion US dollar bailout from the IMF the central bank also did not need reserves.

But other analysts have pointed out that Sri Lanka has to start repaying the IMF loan from this year and new funding may be useful as it will reduce the need to kill domestic credit to maintain or build foreign reserves.

There is some confusion in Sri Lanka regarding the actual effect of IMF funding to the economy and the credit system.

Analysts have pointed out that IMF funding even to foreign reserves has a similar effect as budget funding (Sri Lanka's demand for fiscal funding from IMF is not relevant: fuss-budget ) based on the overall economic program that the country has planned.

Injections into foreign reserves allows a central bank to run less tight monetary policy (sterilize less foreign exchange purchases) thereby creating space in the credit system which could be utilized by fiscal authorities at lower interest rates.

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