Weaker credit demand from private sector to persist -ICRA Lanka | Daily News


Weaker credit demand from private sector to persist -ICRA Lanka

ICRA Lanka Limited, subsidiary of ICRA Limited, a group company of Moody’s Investors Service, in their outlook for March said the weaker credit demand from the private sector is likely to persist, while the activities in the real economy may remain stagnant.

“In this backdrop wage growth is less likely to recover. COVID-19 fears are expected to continue to cripple the tourism sector in the near term. Both short and long-term interest rates likely to show downward adjustment. Activity in debt and equity markets is expected to be volatile and foreign participation may not improve. Further depreciation of rupee is likely as forecasted by the forward rates. Inflation is likely to edge up as a supply disruption may force prices to go up.”

Making comments for February 2020 it says that Rupee depreciation continued and it was especially acute for the week ended on 21st where it dropped marginally south of LKR 182/USD but appreciated slightly in the last week of February.

“Further depreciation is likely in the month ahead as forecasted by the forward rates. Outstanding forward volume also experienced a decline, a likely result of an expected decline in exports/imports emanating from coronavirus disruptions.”

The reserve position improved to USD 7.9 bn possibly due to the proceeds from the Sri Lanka Development Bond (SLDB) issue held in January amounting to USD 100 million.

Manufacturing sector continued its slow expansion in January mainly due to the slowdown in new orders and stock of purchases. Due to the COVID-19 virus outbreak in China, local manufacturers experienced a significant delay in supplies. Further, a slowdown in stock of purchases in textile & wearing apparel sector could be observed due to Chinese New Year holidays.

Services sector also recorded a meagre expansion in January supported by the expansion in new businesses, business activity, employment and expectations for activity.

Tourist arrivals declined by about 18% in February on Y-o-Y basis pushing the full recovery of the industry further out.

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