Lankan economic activity to pick up soon - ICRA Labka | Daily News


Lankan economic activity to pick up soon - ICRA Labka

With government signaling lifting of the lock-down measures, the activities in the real economy may slowly start to pick up. Both short and long-term Interest rates are likely to remain low, amidst weaker credit demand.

Further, depreciation of rupee is likely as forecasted by the forward rates. In this context, inflation is likely to be well within 4 to 6%.

The industry sector operated with excess capacity in April due to the confinement. Tourism and trade sectors were crippled by the travel restrictions and import controls. Prices at Colombo tea auction rose sharply in April amidst falling domestic production.

With exports, remittances, and tourist receipts falling to historical lows, rupee was facing immense downward pressure early April. Capital flight continued from the debt market. Foreigners were net sellers of the government securities. However, the reserve position improved marginally in April.

Prices of Sri Lanka’s ISBs recovered to some extent, but started to deteriorate towards the end of the month. In the meanwhile, the SLDBs auctions also went massively undersubscribed.

Money market activity remained dull during April especially in the first half but the short-term interest rates continued to decline. Liquidity in the money market remained for the most part.

Despite the fact that secondary bond market volumes were somewhat thin during the month, the yield curve shifted down across all maturities. AWPLR remained at upper single digit levels in April and displayed some volatility over the weeks. Inflation moderated in April with prices of vegetables and rice falling noticeably.

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