Central bank holds rates amid debt crisis
COLOMBO: Sri Lanka’s central bank left borrowing costs unchanged, even amid surging inflation and a slumping currency while the country slid further into a debt crisis.
An impending default on Us$12.6bil (Rm56bil) of overseas bonds is flashing a warning sign to investors in other developing nations that surging inflation is set to take a painful toll.
Prime minister Ranil Wickremesinghe has yet to choose a finance minister, who will help lead talks with the International Monetary Fund over badly needed aid.
But he is moving forward with a plan to curb President Gotabaya Rajapaksa’s sweeping executive powers, saying a draft on the constitutional amendment will be finalised next week.
The Central Bank of Sri Lanka held its benchmark standing lending facility rate at 14.5% yesterday. Five out of eight economists ina Bloomberg survey expected a hike of up to 300 basis points, while three expected a hold.
The earlier rate hikes did little to cool inflation, currently running at almost 30% – a product of shortage of everything from food to fuel as the nation struggles to pay for imports.
Opposition leader Sajith Premadasa used a parliament address to make a pitch to tourists to visit as the country struggles to rebuild much needed foreign exchange reserves. His party tweeted the video clip of Premadasa hyping up Sri Lanka’s surf spots and tourist attractions.
Wickremesinghe said in a tweet that the draft of the constitutional amendment to curb Rajapaksa’s wide-ranging powers is expected to be finalised by next week.
He has also instructed the staff of the prime minister’s office to slash expenses by half.
The Colombo All-share Index fell 0.5%, snapping four sessions of gains. Still, its rebound of over 20% from last month’s low seems to suggest that equity investors have priced in the worst.
“There is a petrol ship in our waters,” energy minister Kanchana Wijesekera told parliament as the country asked citizens not to line up at fuel stations. “We do not have the foreign exchange.”
Sri Lanka “hopes” to release the ship “today or tomorrow,” the minister said. The nation also owes the same supplier Us$53mil (Rm233mil) for an earlier shipment of gasoline, he added, without elaborating.
The prime minister has said the government is working to obtain dollars in the open market to also pay for three ships with crude oil and furnace oil that have been anchored in Sri Lankan waters.
He told parliament that the administration was in discussions with the World Bank to channel part of the Us$160mil (Rm705mil) aid provided for social welfare, for fuel imports.
The Colombo All-share Index jumped as much as 3.5% to the highest level since April 6, before paring about half of that advance. Still, the key index was on course for a fifth session of gains. Its rebound of over 20% from last month’s low seems to suggest that equity investors have priced in the worst.
Sri Lanka’s dollar bonds traded mixed as the nation formally went into a default for the first time. The debt due this July was indicated 0.24 cents higher on the dollar, while the securities maturing in 2030 were 0.22 cents lower.
Sri Lankans may sell as much as 20% more gold this year as people in extreme distress sell their jewellery to raise funds, according to Chirag Sheth, a consultant at London-based Metals Focus Ltd.
Citizens had sold about seven tonnes in 2021, he said. Demand for the precious metal had dropped by a third in the island nation from the pre-pandemic years as tourism took a hit.
While old gold sales are “very strong,” the metal is also turning out to be the last resort for people who do have some money to park their funds as “you cannot put your money in stocks, banks interest rate is lower and your local currency is depreciating,” Sheth said.