The benchmark rate has given up a cumulative 550 basis points since the end of last year. Analysts expect the rate to fall to between 12 to 15 percent by the end of 2023, providing a much-needed fillip for the businesses and consumers to ramp up their spending. Meanwhile, the government securities market also reacted to the IMF deal last week with yields falling across the board. At the first bill auction held after the IMF Board approval last week, the bill yields fell sharply by 171 basis points, 122 basis points and 160 basis points for 3 months, 6 months and 12 months bills to settle at 26.23 percent, 26.12 percent and 24.32 percent respectively. The three tenors have shed a cumulative 641 basis points, 608 basis points and 495 basis points each since the current streak of declines began in mid-December last year.
Export earnings continue to decrease.
Sri Lanka’s merchandise exports decreased by 8.06 % to $ 1,005.2 million in February 2023 compared to February 2022 as per the data released by the Sri Lanka Customs.However, it is a 5.62% increase when compared to February 2021.Export earnings from tea which made up 12% of merchandise exports, increased by 9.14% y-o-y to $ 204.13 million in February 2023 compared to February 2022.xport earnings from apparel & textile have decreased by 2.32 % y-o-y to $ 483.35 million in February 2023 compared to February 2022. Although earnings from exports of Apparel decreased by 14.75%, earnings from export of Textiles increased by 146.67% in February 2023 compared to February 2022.Also, export earnings from rubber and rubber Finished products have decreased by 17.81 % y-o-y to $ 76.58 million in February 2022, with negative performance in exports of Pneumatic & Retreated Rubber Tyres & Tubes (-6.10%) and Industrial & surgical gloves (-45.38%).
Bondholders may subject to 20% principal haircut – Barclays.
Holders of Sri Lanka's international sovereign bonds face a 20% principal haircut in the country's debt restructuring as well as maturity extensions and a reduction in coupons, according to a Barclays report.Barclays estimates investors holding the country's sovereign bonds could see a recovery value - the percentage they recoup on their investment – in the mid-40s while exit yields could range from 12% to 15%.An inclusion of instruments such as GDP-warrants which link payout to a country's economic performance in the debt restructuring could potentially improve the recovery value to the mid-50s."Board approval of the IMF facility paves the way for bondholder talks and start of a debt-restructuring process," Avanti Save at Barclays wrote in the note to clients.
Standard Chartered emphasises maintaining double digit interest rate.
Speaking at a webinar held by the Central Bank on Friday (24), Bingumal Thewarathanthri, Chief Executive Officer (CEO) at Standard Chartered Bank Sri Lanka said that the 5% plus interest rates offered by the US Federal Reserve, have made it very easy for investors to park their dollars in the US.“So, if you are trying to attract those investments into the government securities market, we can't come down to single-digit interest rates sadly but we will have to keep those interest rates at a certain level to attract those investments and stabilise the exchange rate and depreciate it according to the market norms,” he said.Moreover, he said that they expect the client interest rates to drop to about 15% maximum for corporates and slightly higher for Small and Medium Enterprises (SMEs) after the interest rates fall as a result of the debt restructuring parameters that are set to be announced in April.Thewarathanthri said that with less intervention from the Central Bank, the market forces will decide on the Sri Lanka Rupee (LKR) to appreciate around Rs. 300 per US dollar after the debt restructuring is completed and thereafter depreciate 5%-7% annually.
EU supports revitalising wellness tourism industry.
As part of the European Union’s (EU) response to support the revitalisation of the Tourism Industry in Sri Lanka, two Train the Trainer workshops were held in March to prepare for the launch of new wellness tourism courses followed by a certification ceremony last Friday (24) with representatives from the Delegation of the European Union, Sri Lanka Tourism Development Authority (SLTDA), and the Sri Lanka Wellness Tourism Association in attendance. This initiative is a part of the EU-funded project “Capacity Development for the Wellness Tourism Industry of Sri Lanka” that aims to raise the quality standards of wellness tourism and will aid in better positioning Sri Lanka as the preferred destination for wellbeing.
Foreigners flock back to rupee bonds amid renewed interest.
Foreigners sharply increased their holdings in rupee bills and bonds in the few weeks up to the approval of the deal with the International Monetary Fund (IMF) as they were seen growing confident over the turnaround story of the Sri Lankan economy in the medium term. Foreigners who offloaded a record sum of rupee bonds since the good governance regime came to power in 2015 and deepened the rout during the pandemic, returned with a bang piling back over Rs.17.2 billion worth of Treasury bills and bonds in the last two weeks. This marked a 33.4 percent jump from a fortnight ago and most in the recent history. With the recent piling up of rupee bonds, foreigners held a cumulative Rs.68.82 billion rupee equivalent bills and bonds by the end of March 23.
Banking stress puts U.S. and Europe on watch for credit crunch.
Stress in the banking sector is being closely monitored for its potential to trigger a credit crunch, a U.S. Federal Reserve policymaker said on Sunday, as a European Central Bank official also flagged a possible tightening in lending.Authorities around the world are on high alert for the fallout from recent turmoil at banks following the collapse in the United States of Silicon Valley Bank (SVB) and Signature Bank and the rescue takeover a week ago of Credit Suisse.Last week ended with indicators of financial market stress flashing. The euro fell against the dollar, euro zone government bond yields sank and the costs of insuring against bank defaults surged despite assurances from policymakers.In the latest effort to calm investors, the U.S. Treasury said on Friday that the Financial Stability Oversight Council agreed that the U.S. banking system is "sound and resilient".
China's industrial profits slump in Jan-Feb as COVID pain lingers
Profits at industrial firms in China declined 22.9% in the first two months of 2023 from the year before, official data showed on Monday, as the factory sector struggles to claw its way out of the slump caused by COVID-related disruptions.The contraction followed a 4.0% fall in industrial profits for the whole of 2022, data from the National Bureau of Statistics (NBS) showed, pointing to a downbeat start to the year for factories at large.Industrial profit numbers cover firms with annual revenues of at least 20 million yuan ($2.91 million) from their main operations.The Monday data follows a flurry of economic indicators that show an uneven road to recovery from a bruising three-year battle against the pandemic.
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